Create and preserve wealth

by Stacy Francis, CFP®, CDFA

The one question I’m asked the most – three times today, for example – is: how do I create wealth? And once I have it, how do I hold on to it and make sure I never, ever lose it?

Well. Wealth is – in essence – the difference between your income (be it from salary, self-employment, lottery winnings, or a huge inheritance), and your spending. Thus, in order to create wealth, you need to make more money, spend less, and make smart investment choices. The preservation of wealth is achieved through diversification and spreading of risk, and through keeping expenses (especially fixed expenses) at a minimum. 

Sounds simple enough? In theory, yes. But most people find this practice much harder than you might think. All day long, we are bombarded by messages to spend, spend, spend. From TV and radio ads to magazines – even our friends! – people never get tired of telling us about all the things we absolutely must have. The problem is, most purchases we make take us further away from wealth and financial security.

As for making more money, this is an area where you – theoretically – should be in charge. But what if that high-paying promotion means a move to a different state and your children are in school? What if your company goes belly-up just when you need it the most?

As for preservation, the biggest favor you can do yourself is to stay as far away from fixed expenses as you can. When you splurge (and you should, because everyone deserves a boast from time to time), make sure it is one-time purchases, and that you can afford them without committing to some sort of financing plan. If you use a credit card, don’t spend more than what you can pay off at the end of the month.

Finally, of course, you can neither create nor preserve wealth unless you make wise investment decisions. Navigating through the jungle of securities can be a daunting task, and intimidating enough for many people to do nothing at all. The good news is, plenty of competent people are dying to do this for you. Let them!

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