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- I've been working with wealthy clients for nearly 15 years, and I've noticed some common habits.
- It may be worth considering some strategies, such as saving at least 25% of your income.
- We also employ a team of financial experts who understand how to manage risk.
I've been advising wealthy clients for nearly 15 years, and I'm often asked about the secret sauce or commonalities that lead to success among my wealthiest financial planning clients.
Some people ask simply because they're curious, while others ask because of cognitive-behavioral biases, such as the bandwagon effect or herd behavior, which believe it's safer to follow the crowd or popular opinion.
That's not necessarily the case, but how assessing what the wealthiest among us have in common and applying those behaviors and actions to your own situation can improve your chances of financial success. There is some merit in checking that.
While everyone's path to financial independence is different, I can share three daily habits that some of my wealthiest clients share.
1. The most important annual expense is savings.
Sure, big-ticket items like mansions and exotic cars sometimes come with a wealthy lifestyle, but the biggest expense for my most successful clients is their commitment to savings.
In fact, my wealthiest clients consistently save more than 25% of their annual gross income.
Most industry experts recommend saving around 10% to 15% of your gross income and increasing it each year or as your cash flow allows. I agree with this strategy and frequently recommend this technique to my clients. If you don't have anything in your savings account right now, 10% of your income is a great place to start.
But if you're trying to understand the habits of my wealthiest financial planning clients, they almost always start with a more aggressive savings rate. When I look at my most successful clients, they maintain this savings rate even at a variety of income levels, from very high annual income earners to retirees who receive no earned income. I am able to.
2. Good at understanding and managing risks
I recently learned that more people die descending Mount Everest, the highest mountain on Earth, than climbing it.
Using this same metaphor on the topic of wealth aligns with my belief that more and more people become “victims of wealth” trying to maintain wealth rather than accumulate it. Once you have wealth, you must protect it not only from bad investment decisions and market fluctuations, but also from other casualties such as overspending, longevity, inflation, and even frivolous lawsuits.
Unfortunately, protecting your wealth can be cost-prohibitive. As Certified Financial Planners, we are taught to prepare our clients for high long-term care insurance premiums. But this is just the beginning.
You may also need disability insurance to protect your income, life insurance to protect your assets from estate taxes, and umbrella insurance for additional personal liability protection, to name a few other protection mechanisms.
The list is endless, and each of these products adds maintenance costs. However, the costs may be minimal compared to the consequences of actually needing some of this coverage but not receiving it.
3. A team of experts is on your side
While more and more people are turning to Google and YouTube to tackle their finances on their own, my most successful clients seek professional help. A team of wealth creation experts typically includes an attorney, tax expert, insurance expert, and financial advisor or planner.
These experts will help you by providing expert advice and concrete action steps to follow, but their real value may lie in intangible factors such as: .
- Helps you control your emotions. Losing your cool can happen to anyone, no matter how wealthy you are. My most successful clients rely on us to help them detach from those emotions and make sound financial decisions.
- It provides a clear roadmap when there are endless paths to explore. My most successful clients value receiving a comprehensive financial plan that is tailored to their goals and circumstances. You can use these plans to prioritize your goals and create a cash flow strategy that maximizes your savings and optimizes your distribution strategy. Additionally, they rely on these plans to assess risk exposure.
- Respond to rapidly changing financial and legal landscapes. In the field of finance, the landscape is constantly changing with new legislation, groundbreaking research, and new products. I would argue that since December 2017, the industry has seen the most legislative changes ever. Recent legislative changes include the Tax Cuts and Jobs Act (enacted December 2017), the Every Community Development Act to Increase Retirement Benefits Act (enacted December 2019), and the Coronavirus Aid, Relief, and Economic Security Act. (established in December 2017). March 2020). All of this will cause financial planners to re-evaluate and, in some cases, reverse direction from previous recommendations. This will only be done after we become familiar with the new law, and the investigation may take countless hours.
After all, my most successful clients are extremely consistent, dedicated, and utilize a team of experts to help them achieve their most desired financial goals.
This article was originally published in June 2020.
