When we work with clients, we say that we help with Wealth Formulation. But why should you "Formulate" your wealth? What does this mean?
Most financial planners today talk about Wealth Management or Wealth Accumulation. When you hear “wealth management” it probably makes you think that you need to already be wealthy and that’s true for many adviser relationships actually.
Some advisers won't work with you unless you have $1M or more. Really!? Someone with $823,012 doesn't have enough to deserve help managing their wealth? And if you don’t have $1 million or $250,000 or whatever the minimum is, how do you get to that point?
Now let's think about Wealth Accumulation. How does this word make you feel? Think about a board game like Monopoly or Risk. Here the goal is to get as much as you can at the detriment of others. Accumulation comes from Latin “accumulate” for ‘heaped up’. In these games, if you have a big heap that’s great for you, but others around you probably have nothing. That’s not what we want either!
This is why you should formulate your wealth. Formulate comes from the Latin diminutive of “forma” to ‘shape or mold.’
Think of a potter working with his clay to sculpt a beautiful piece of pottery. Now when you formulate your wealth, you think about where you want to be in 1 year, and 3 years, and 10 years and you plan carefully what steps you need to take and mold your path to get there.
Your wealth formulation plan will be about you and will fit your unique needs. It won’t always be a straight line – it might bend and curve around events that happen in your life along the way. But you’ll get there!
In other posts we discuss lots of techniques for formulating your wealth, but there are 6 general areas that you will want to keep in mind as you think about when and how to save and invest.
1. Short-Term Safe
This is money that you want to have secure and available when you need it. Think of putting this in a savings account at the bank or even under your mattress! You likely won’t get a huge return on your investment, but if an emergency strikes, you’ll be ready.
2. Mid-Term Safe
This is money that you won’t need for 10 or 20 years. You want it to be safe, but you have a little time to try investing it for a better return. Bonds or non-risky real-estate investments could be options for your mid-term safe funds to go.
3. Long-Term Safe
You likely won’t need to access your long-term safe money for 30, 40 or 50 years! Think about putting it in things like life insurance, annuities or taking advantage of a pension if your employer offers it.
Some people think of Social Security as a long-term safe investment…you’re paying for it with your paycheck, so it must be a sure thing, right? That would be nice, but it’s not for sure. There’s always a chance that your Social Security benefits could be reduced or delayed until later years, so its best to plan ahead and save long-term funds on your own as well.
4. Long-Term Aggressive
With your long-term aggressive money, consider investing in slightly more volatile options. Since you have a long time before you need to access the money, you have some time to ride the waves of the market with ETFs, stocks, and mutual funds
5. Mid-Term Aggressive
If you have funds that you would like to invest aggressively over the mid-term, you can look into day trading or loaning money (checkout our great blog post on this topic!). You can even look into business capital and invest in a promising business.
6. Short-Term Aggressive
This money should not be funds that you are counting on for retirement. Instead, if you choose to use some of your money for betting or gambling, it should be with extra cash that you use for a hobby. This should not be your plan for funding your later years!
Now that you understand a little bit about Wealth Management and Accumulation, you can understand why we like to assist our clients in Formulation their wealth! Are you ready to take control and formulate your own plan?