When you think of building wealth, think of a jig saw puzzle. With a puzzle, each piece is separate but when put together, creates a complete picture. Building your wealth is the same way.
Your income, your insurances and your retirement accounts should all be reviewed and worked on separately. When those financial pieces are put together, they create a complete financial picture for you.
The Secret to Building Wealth: Build a Puzzle
Step #1 – Your Income:
- The first step towards building your wealth is getting to the point where you can survive on your income.
- Your income should meet all of your expenses without borrowing.
- The use of a credit card to meet expenses is borrowing.
- A mortgage is borrowing, a car loan is borrowing, an outstanding student loan, borrowing.
- If you are making payments on any type of outstanding loans you are not to the point where you can survive on your income.
- When you are at the point where you have no outstanding loans and can meet all of your expenses with money left over, you are ready to build wealth.
- Remember, it’s not what you make but what you keep that really counts.
Step #2 – Your Insurances:
- Life insurance is the first piece of your wealth puzzle; every other insurance builds on top of life insurance.
- Think of life insurance as the base of a pyramid, everything builds up from the base.
- If used properly, life insurance can be used as a source of income through the growth of the cash value.
- This would require that the life policy be a cash value life policy, not a term policy.
- Term life insurance policies do not provide a cash value build up only a death benefit.
- Each type of life insurance policy provides a death benefit; but whole, universal and variable life insurance also have built-in cash value features in addition to the death benefits.
- Your insurances serve one purpose, to keep the flow of money constant in the event of some tragic event in your life.
- Life insurance will protect your loved ones from financial ruin if you die unexpectedly.
- Disability insurance will keep your income coming in so that you avoid financial ruin.
- Long-term care insurance will cover you in the event of a tragic illness or accident.
- Keeping current on your insurances will help you build your wealth.
- If your insurance policies are current you will not have to divert money to pay for an unexpected death, disability or illness, your insurances will do that for you.
- Pay your insurances and they will pay for you if the need arises.
Step #3 – Your Retirement Accounts:
- Build up your 401k pension accounts and your IRA retirement accounts during your working years.
- With reserves in your retirement accounts, you can pursue your passions without money worries during your retirement years.
- Retirement accounts are not to be used by you during your working years as a savings account to be drawn upon whenever you have a financial need.
- This would defeat the entire purpose of building up your retirement accounts.
- Your 401k and IRA retirement accounts were established by the government so that you could be self-sufficient after your working years.
You can start your wealth puzzle at any age.
Keep it simple by breaking down the pieces. Build it slowly, invest wisely and learn along the way. Lessons are learned through mistakes; it’s okay to make mistakes. Just make sure you correct your mistakes and move on and you will learn the secrets to building wealth.