Author: KHD

For most people, steady, ongoing work is the foundation of their wealth. Career success and a good salary, or building and growing your own business, are the means to a lifestyle you enjoy now and the promise of a stable financial future.

For others, an inheritance, a windfall from an investment or employee stock, selling a business, or even winning the lottery is the source of wealth.

But no matter how high your salary, successful your business is, or big the windfall – is it enough to create lasting wealth? How about generational wealth?

If your goal is to have enough to live the life you want and pass down wealth to provide ongoing security for your family, what do you need to think about besides money?

Black swan events happen, markets go through extended downturns, and unexpected life or job issues can derail plans.

That’s where financial planning comes in. We break down some of the things you need to think about on the journey to lasting wealth.

Start by Creating Your Own Definition of Wealth

Rather than focusing on a number, try defining wealth as a lifestyle. This gets you closer to understanding what you need and when you need it. Once you start to understand what your goals are, you can build a financial plan that balances your lifestyle now with the goals you want to achieve in the future. For older generations, working and saving until retirement at age 65 was the norm. Younger generations may have different goals or may have multiple goals and want to achieve them sooner.

• Early retirement
• One spouse stops working
• Start a business
• Buy a second home
• Pay off all debt and be able to self-fund kids’ college

Make Informed Choices

The word that resonates most strongly with investors today is flexibility. Whatever the individual definition of wealth is, it often starts with a desire to have more control over time and work.

Understanding the trade-offs that are involved can help you make decisions that are right for you.

For example, if retiring early is the goal, a common approach is to sacrifice lifestyle and time in the short term in favor of reducing expenses, increasing saving, and maximizing income through work. There’s even a name for this – it’s called the F.I.R.E. movement (Financial Independence Retire Early). However, there’s a limit to how long you can make sacrifices and continue to feel satisfied by your life in the moment. Instead, there are several “levers” you can pull to create a better balance:

• Extend your retirement age
• Re-evaluate risk in your investments
• Reduce high-interest debt and shift to lower-interest debt
• Optimize tax efficiency

These are just a few examples, there is no one right answer. Being thoughtful about your goals, then exploring different scenarios, and considering potential benefits from the financial planning toolkit can put you on a path to maximize your own financial independence and flexibility.

Expand Your Options

The first step to lasting wealth is to invest as early and as consistently as possible. Ensuring that you are maxing out tax-advantaged retirement savings, and taking advantage of health savings accounts and 529 plans can put money to work and reduce your tax burden.

Expanding beyond the options available in retirement plans by putting after-tax dollars into a taxable account can help you diversify your portfolio. This allows you to refine your risk profile and potentially boost return.

Control Your Risk

Ensuring that you have lasting wealth means protecting it. A review of your insurance coverage that considers potential liability is critical. Depending on your lifestyle, you may want to explore an umbrella policy that provides additional coverage above the limits on your existing insurance policies.

Start Estate Planning Now

Ensuring that your wealth can provide for your family for decades to come is something you should do proactively. A good estate plan is both thoughtful and efficient. It ensures that your wishes are carried out, and it preserves as much of your estate as possible for your dependents. For many families, a trust can simplify the transfer of assets, keep your estate private, and can be customized in ways a will cannot. You also don’t have to relinquish control of your assets.

The Bottom Line

Achieving lasting wealth requires more than just asset growth. Understanding your goals, the trade-offs in terms of choices, and how you can incorporate financial planning tools into your situation can help you protect and grow your wealth for generations to come.

Northwestern Mutual’s annual Planning and Progress Study is out, and the results this year are very interesting. The study examines U.S. adults by generation to understand attitudes and behaviors toward money, financial decision-making, and financial security.

Given the volatility of the last year, the results reflect more uncertainty. But they also indicate that while each generation has different goals, needs, and attitudes towards money, getting financial advice from a trusted resource is a constant.
The study found that two-thirds of Americans believe that their financial planning needs improvement. But while YouTube, TikTok, and Instagram may be the go-to for DIY needs or setting up new tech, when it comes to money, people prefer professional advice from a financial advisor.

The One Thing Every Generation Worries About

Across all generations, being financially prepared for retirement is the biggest worry. Of Gen Z, Millennials, and still-working Boomers, more than 50% expect to be prepared for retirement. Gen X is the outlier – only 45% of Gen Xers are confident they’ll be ready for retirement.

Younger generations also expect more of the burden to fall on them. Gen Z and Millennials aren’t counting on Social Security. If it’s around for them (42% don’t think it will be), they are only counting on it for 15-20% of retirement income.

Younger Generations Expect More from Financial Planners

All generations value financial advisors for their professional expertise and for helping them think long-term and stay on track for goals. But Millennials and Gen Z want a more robust relationship with an advisor. For them, aligning finances with values, saving time, and keeping them up-to-date on changes to financial legislation or changes that will impact them are important.

How Can You Build a Confident Financial Future?

A key finding of the study is that people who work with a financial advisor are much more confident about their financial journey, from retirement to handling unexpected expenses to achieving financial security.

But before you can work with a financial advisor, you need to find someone you feel confident in. In short, someone you vibe with.

How do you do that?

It comes down to selecting an advisor that understands your priorities. And while these are specific and different for everyone, the stage of life you are at creates a set of challenges that everyone may face at some point.

These may include:

• Cash flow planning
• Buying an investment property
• Career advice and planning, from getting the most out of your benefits to equity compensation
• Retirement savings
• Minimizing taxes
• Ensuring you have adequate insurance, including life and liability. Depending on your profession, you may need professional disability insurance
• Saving for kids’ education

For many people, the overall goal is to have confidence and flexibility. An understanding of the choices available to you and what the trade-offs are is a more modern way to think about financial planning. It goes beyond just investments.

The modern financial advisor is more of an architect who brings together all the other professionals in your life so you can see the entire picture and then make decisions. And as you move through your journey and things change, you can adapt and continue to thrive.

Technology Is a Key Attribute

A good relationship relies on strong communication, and today’s investors want their advisor to be tech-forward and accessible. If you’re considering working with an advisor, ensuring that they are available to you in all the ways you prefer to communicate can keep you both informed and build trust.

The Bottom Line

Working with a financial advisor can help you build the future you want, while keeping you calm and peaceful in the present. You want to be able to enjoy your life now and have options for the future. Finding the right advisor for your lifestage, with the expertise you require, is easier now than ever.