BUILDING WEALTH – Part 1

Building Wealth – by Gary John

In this series I would like to discuss how to build perpetual wealth, the reasons for diversifying your investments, how to approach diversification, and how to leverage different asset classes and diversification strategies to increase your wealth and ensure your personal prosperity, and how to tax-shelter your wealth.

(As a disclaimer, I am not a CPA, lawyer, or financial planner so it is in your best interest to seek differing opinions on the topics I present, so you can make your own decisions)

My intention with these series is to help people maximize their financial well-being and prosperity. I have learned many things through hard knocks and I have made quite a few financial mistakes, but as I near retirement age I need to secure the money I have and also create multiple streams of income since social security is not going to pay my expenses. I also want to pay the least amount of taxes possible.

As I see it, many people are going to take a major financial hit when they retire. Most aren’t even aware of the danger that awaits them. I don’t know about you but I was taught to get a good job, work hard, invest in a ‘well-balanced’ portfolio of stocks, bonds, and mutual funds through a 401k or IRA and save for the long term. And then when you retire you can deplete your funds by 4% every year and have plenty to live on. People may be in for a big surprise when two major issues arise. First of all, a great majority of people failed to save enough. God bless those baby boomers who love to buy expensive cars, boats, clothes, houses, and take nice trips. I ‘don’t have enough money’  to put in my 401k! Secondly, even if I totally funded my retirement what will happen if we have a major stock down-turn? For instance, another pandemic like Covid. I don’t know about you but I don’t want to live with in my kid’s house nor ask them for money.

The sad reality is that most people don’t know very much about how to really ensure a financially secure retirement. One of my favorite authors is Robert Kiyosaki, of ‘Rich Dad Poor Dad’. He describes the lack of financial education as the ‘conspiracy of the rich’. It almost seems as though the lack of financial education in the world is intentional! Why are we forced to take courses in Greek Mythology, Anthropology, and Astronomy to make us a ‘well-rounded individual’. And yet, have no mandatory courses on finances, investing, mortgages and the like. And then after schooling is over, our parents tell us to get and job and live off your pension in retirement. Boy, things have changed. Very few companies are giving pensions.

I am truly amazed on how bad we are saving money. Nearly half of all Americans don’t even have $400 saved for emergency. About 80% of Americans say they are living paycheck-to-paycheck. An average household has $6000 in credit card debt. 40% of retirees are still paying off debt-either credit cards, school, or mortgage. Social security is the primary source of income for most retirees. The average monthly Social Security check is $1161 which is $17,500 per year. Americans ages 55-64 have an average of $17,000 in retirement savings which would equate to $310 per month if put into an inflation-adjusted annuity. $310 a month doesn’t go far to pay the bills, cover medical costs, or put food on the table.

While I will talk about how to secure your financial future and the specific actions you can take, you must be willing to change your old ways, thoughts, and mindset. You must be willing to learn new things and unlearn old ways of financial thinking. There is so many untruths out there about money and finances who are we to believe? And as I said before, don’t believe me and I suggest getting other opinions. But I am not here to sell you a book or take a course from me. I just feel obligated to educate you on how to acquire financial freedom.

Our goal here is not to get rich in 30 days. Speaking of that, do you know the difference between being rich and wealthy? The term ‘rich’ often refers to people that have money, but not necessarily wealthy. The term ‘wealthy’ refers to those who achieved true financial freedom, along with all the riches it provides. They have enough financial streams of income coming in that surpasses their expensive. They are truly financially free and are not dependent on a salary or social security.

So, what makes those that are financially-free different? It’s because they took charge of their own financial future, sought wise counsel, took action, exercised discipline and let their wealth grow. They’ve not only financial independence and freedom, but have created income streams that rewards them with checks coming in every month!

I have used financial advisors and planners in the past. Most of them, not all, are sales people. They give you a beautiful portfolio in a nice leather-bound case with a mixture of stocks, bonds, and mutual funds. It looks amazing doesn’t it? You then give them all your hard-earned money and without questioning them. They get 2% commission every year for all ‘their hard work’. You probably will have annual meetings where they explain how bad the market was…. but it looks good for the future. They tell you to keep your money in the market because you don’t want to miss out for the future increase. (basically, they don’t want to miss out on your 2%). Sure this sounds harsh, but does that sound familiar to you? If anything, at least hire a fee-for-service advisor who does not get an annual commission.

In this series, I will teach you things your financial advisor will not tell you. Why? Because there is no commission to him! Will it require some work? Yes, but not much. Will I take a little risk? Yes, but not much. Will I have to get a proper mindset and drive? Yes, but actually a no-brainer. Will I be wealthy in a year? Probably not, unless you already are.

I think the best way to get started is to figure your expenses when you retire. Then subtract that from your pension (if you have one) social security, and any other money coming in.. The remaining amount is what you need to make up with additional income sources. There are plenty of expense guides online to help you not to forget anything. Don’t forget about inflation. Right now it’s pretty low at 1.4% but I remember in 2011 it was 4%. So, lets use 3% as a good average. Your retirement funds need to keep up with at least inflation.

Pensions are headed for the cliff. As you already know most companies do not offer pension plans anymore. But how safe is your current pension plan? Many municipalities are facing lack of money to fund their existing pension plans. simply stated, pension plans don’t have enough money to pay out the promised amounts to retirees. In some cases pension payments are being cut as much as 60%. That type of cut can be disastrous to those already in retirement, or those about to retire. When you are counting for that pension check to come in each month and it is severely reduced, it can greatly effect your retirement plans. Did you know Chicago’s city and school pension funds are under funded by $70 billion and it is bound to get worse.

Being self employed I’ve learned to do my own research, learned to take action, and learned what does and doesn’t work in my own financial life. I am going to discuss not only how to create wealth but how to protect it. Protecting your wealth is just as important as growing your wealth, so it’s important to hedge against economic turmoil and inflation. It’s like building life rafts to ensure we survive the coming turbulent economic waters a achieve stable perpetual wealth.

Stay tuned for the upcoming Part 2 on How to Create Perpetual Wealth