Best Way to Build Wealth, Roth IRAs, Life Insurance, and Comprehensive Financial Planning
In this post: I will give you the single best way to build wealth, share my recent Investopedia Advisor Insights, and of course, give you my Weekly Market Recap.
This is the Millennial Wealth Blog.
What is the single best way to build wealth? Hint: It is your…
This may seem like a no brainer, but I talk to way too many people that are not happy with either their salary or career path they find themselves in.
So, I am saying to go after the job that will compensate you the most every payday, right?! Not necessarily…
We all start out somewhere. Many of us leave school with a mountain of debt and no great idea where we are going to find our first “real” job. According to the 2010 US census data, only 27% of graduates were working in the field that correlated with their major. This means that 73% of graduates made a compromise when it came to getting a job. Maybe some chased after a high-paying salary no matter the line of work, or maybe they were trying to hold out for that ideal job until finally giving up and just taking a position that offered a paycheck. Either way, it is safe to say that most people are unfulfilled in the workplace, and in turn are not maximizing their earning power. I am a firm believer that if you find your purpose and passion in the workplace, it will lead to a more fulfilling life, not only from a financial standpoint but for one’s total well-being. As humans, we need to have a purpose in life, otherwise we walk around depressed and questioning our very existence. We are all unique individuals and can offer something of great value to society, it is just a matter of figuring out what that really is and finding a way to make a living out of it.
I find there are two types of people in the workplace:
1.) You may be sitting behind a desk at a company that employs hundreds, if not thousands of individuals in the exact same position, wondering how you will ever accomplish your goals in life, especially from a career perspective.
2.) Maybe you are at a great company with a path to your dream job, that you can see yourself with for a long time, but your career path may take many years before you are making the kind of money that will make you happy financially.
If you fall in the first category, then:
Start asking yourself if you enjoy the basis of your line of work and if you are able to reach fulfillment at your current company. If you can not see the end game, then you need to stop wasting your time and either find the company that can make this happen for you, or you need to create your ideal position. Time is not on your side… it is one of the only commodities you can never get back. Start planning immediately on how you can make money from your passions and interests. Look for a company that lines up with your ideals that offers the kind of work you are passionate about. If you don’t find it, well lucky for you! We are blessed to live in a time when creating a business and reaching customers is easier than ever, with the internet reaching over 3 billion people in the world. Don’t misunderstand what I just said… Starting a business may be the single most difficult thing you ever do, but reaching potential customers and making a name for yourself is much easier today than any other period of time. When starting a business, consider whether you can stay in your current position until financially it makes sense to focus on your business full time. If you are not able to stay in your current position, consider getting a “side hustle” to make up some of the difference in income if you were to leave your current job while you build your business.
If you are happy with the company you are at:
Do not lose sight of where you are heading and be realistic about how long it may take you to get there. This is difficult for many of us because we want to have it all right now. It is very common to lose sight of the ultimate goal and find yourself just “punching the clock.” I urge you to consider your value to society everyday and know that the reason you go to work is because you bring a specific value to your customers and company. By focusing on this everyday, others will take notice. Be assertive when it comes to letting your boss know what your vision is for your future and how you want to position yourself in the company. Do not be afraid to ask for more, the worst thing that can happen is you are told no. If you show up with a great attitude and the idea that your job matters, not only to the company but to the customers you serve, then you will naturally perform better in your current role and will be in a place to ask for more in the form of compensation as well as career advances.
You may be thinking, “this is all great advice but I need more money today.” Well, regardless of your current scenario, you can absolutely make more money today. Look for ways to generate additional streams of income so you can reach your financial goals sooner.
In today’s gig economy there are many ways to make additional streams of income. If you have a car, maybe start a rideshare with Uber or Lyft. If you are an artist or craftsman, maybe open an Etsy shop. Or maybe you are a musician, give lessons a few nights a week. Mow a couple of your neighbors lawns. This isn’t difficult… just start doing something to bring in more money.
So, whether you need to start thinking about the business you are going to create or you just need to make more money until you are in a better career position, do not let any more time go by. Today is the day! If you are not happy with your income or your position, make a positive change to increase your wealth and your overall well-being.
I am a Premier Advisor on Investopedia’s Advisor Insights, where I answer questions that are submitted by readers on topics ranging from the simple to the more complex. Here are a few recent favorites:
What liquid account can I rely on that I could invest and access before retirement?
I am 24 years old and contribute to my company match 401(k). I am looking for an account where I can invest and grow my savings with monthly contributions. However, I would ideally like to grow this account to the point where it is significant enough that I would want to access it before retirement without paying any penalties. Would a brokerage account meet my goals? What account should I open and fund? The main goal is to have access to an account that will remain liquid and penalty free before retirement.
You are asking all the right questions and starting at an early age is the best course of action. There are a couple of options for you and without knowing your entire situation, I can not give you any specific direction, but you could open a taxable investment account or open a ROTH IRA.
The taxable account is just what the name implies, an account where the income is taxed in the year it is received. These types of accounts don’t have any liquidity restrictions other than the market being open.
The ROTH IRA gives you the ability to contribute up to $5,500 per year. You pay the taxes upfront and the withdrawals are tax-free after age 59 1/2. The ROTH allows you to access your contributions at anytime without taxes or penalty, however, your earnings may be subject to taxes and penalty if your account has not aged at least 5 years. If your account has aged at least 5 years, then you can access the earnings without paying taxes, but it would still be subject to the 10% early withdrawal penalty. The ROTH also gives you options to withdraw without taxes or penalty for the following:
You use the withdrawal (up to a $10,000 lifetime maximum) to pay for a first-time home purchase.
You use the withdrawal to pay for qualified education expenses.
You become disabled or pass away.
You use the withdrawal to pay for unreimbursed medical expenses or health insurance if you’re unemployed.
Now that I’ve outlined a couple options, I have to be clear that these options are not appropriate vehicles for an emergency savings, which should be held in a liquid savings or money market account to cover 3 – 6 months worth of expenses.
What should my net cash value be for my whole life insurance policy?
I am a 26 year old male. My policy issue date was October of 2014, and I have been paying $300 a month for a $295,000 death benefit. My Net Cash Value seems low, but I am not as knowledgeable as I would like to be with it. I am already “pot committed”, but I want to make sure I am making the correct move by putting $300 a month in something that doesn’t seem to be growing much. It would be at a flat $9,000 at this point had I put it in a normal savings account.
This is a question that can only be answered by looking at the policy you purchased and see how cash value is credited. Your particular situation may warrant a whole life policy, but very rarely is this a product that I recommend. Life insurance is a tool to cover any remaining liabilities and fund financial goals when you die. It should not be used as a savings or investment account, because, as you have noted, the returns are typically very low. I would recommend you look into the cost of a term life policy vs. the policy you currently own and see what the payment difference would be every month. A 20 or 30 year term policy should be much cheaper and allow you to focus on other financial goals like building long-term wealth.
What does comprehensive financial planning entail?
Wouldn’t it make more sense to seek out an individual expert in each of the categories that I need to address rather than a “comprehensive financial planner”?
This is a great question!
Comprehensive financial planning should be all encompassing and cover every area of financial planning like retirement, education savings, tax, estate, and so on. However, when working with a financial planner, the level of “comprehensive” planning that you may receive can vary widely. At my firm, we take comprehensive a step further by partnering with our clients for any and all financial questions. We look at everything from the less complicated: budgeting and debt repayment to credit card rewards analysis and employment opportunities/career development, as well as the more complicated, like planning for retirement or college education to taxes and estate planning.
When choosing a professional to work with, I compare financial planning to the medical field. Typically, you have one individual, a general practitioner, that you trust with the entirety of your symptoms. This individual gets to know you personally and professionally and has a much more intimate understanding of your situation and can put in place the best strategy for treatment. Sometimes, your primary physician will come across a situation that they may be knowledgeable about, but in having your best interests in mind, will refer you to a specialist. In the same way, a great financial planner will know their strengths and weaknesses and will have a team of professionals around them to refer their clients’ more specialized situations.
This week in financial markets:
Major U.S., European, and Japanese stock market indices end the week higher with more conviction surrounding global growth. S&P 500 and Nasdaq both close the week at record highs. European markets continued higher as the sentiment strengthens around Macron winning the French presidential election coming up on Sunday. U.S. unemployment hits 4.4%, its lowest mark since 2007 as 211,000 jobs were created in April. Crude Oil ends the week much lower at 46.45 a barrel as output continues to outpace demand. And the U.S. 10 year treasury yield ends the week solidly higher at 2.35%.
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