Keys to Financial Wellness

By Lorraine McGee, Vice President, Central New York Market, Key Private Bank

Warren Buffet is well known for his simple two-rule approach to wealth building. Rule one: never lose money. Rule two: never forget rule one.

When talking about personal finances, it’s easy to get lost in the broadness of the term. For starters, it covers everything from how we budget to how we spend, borrow, save, invest and earn. In addition, it often carries the connotation of being a day-to-day thing. But if we take a step back and really take a close look at why personal finances matter, the focus becomes very clear. How we manage our personal finances matters because it is what allows us to build wealth.

Know the path, and follow the rules

You have probably heard the adage that if you don’t know where you are going, any road will get you there. For some, there’s an attraction to such adventure. For the rest of us, even if we do appreciate a good adventure, we know there are risks inherent in aimless wandering—especially when it comes to money. Therefore, the key to building wealth is to know your destination. To know the path to financial freedom is lined with smart personal finance decisions. These seven golden rules will help keep you moving in the right direction:

1. Always pay yourself. The simplest way to make money is to save money. Set up your savings account for bi-weekly or monthly automatic deposits. Why is this so important? Because every dollar you don’t save for your future is a dollar you have to re-earn for your future. It’s actually more than a dollar when accounting for earnings on interest.
2. Keep good company. When it comes to how you manage your finances, surrounding yourself with people who share your values and understand your goals will make it much easier for you to build wealth. This applies to both personal and professional relationships. For example, today’s investment and tax environment is increasingly complex. Working with a team of qualified financial professionals and attorneys can be crucial to making sure your wealth management needs are met.
3. Establish a retirement plan. Consider a Roth IRA. Contributions to a Roth IRA are made from your after tax income, so when you are finally eligible to withdraw you won’t be required to pay federal income tax on it. If you are employed, contribute to your 401K, 403b or 457b account. Contributions to these accounts are often matched by your employer. Also consider opening up a high-yield savings account. Every penny matters, and when your income increases, make corresponding increases in deposits into your savings and retirement accounts.
4. Create an emergency fund. Save for the things you want and always spend with a plan. This is easy to do if you set up a savings account and have automatic deposits made on a regular basis. Build up to a six-month emergency fund. By saving for the predictable and unexpected you will keep yourself free from being indebted to friends, family or credit cards should the unfortunate happen.
5. Spend less than you earn. It’s really simple. If you are in the red at the end of the month, either earn more or spend less. You can’t build wealth while you are accruing debt. To earn more, you can take courses or educate yourself by learning new things and continually improving yourself. You can add other streams of revenue by taking on a part-time job or doing consulting work on the side. Spending less isn’t easy, but it is doable. It requires conscious, disciplined behavioral changes. A good place to start is changing how you spend. Before you make a purchase, ask yourself: Do I want it or need it? How often will I use it? Can I afford it? Is there a cheaper alternative?
6. Define your goals. The importance of coordinating your investment portfolio with a long-term financial plan cannot be overstated. Identifying your life goals and aligning them to your investment portfolio can help serve as the benchmark for evaluating portfolio performance over time. Also account for college education funding, estate planning and charitable giving goals.
7. Secure your family’s future with a risk management strategy. As your wealth increases, so does the potential for risks. Such risks include unexpected death, health issues, accidents or disability. Is your family prepared for these types of risks? An effective risk management strategy geared toward income replacement often involves life and/or disability insurance.

Don’t overcomplicate things

Managing your personal finances isn’t easy. Life happens fast, and there are a lot of shifting variables. But if you keep it simple and remember that managing your personal finances is about earning money and not losing it, and make decisions that facilitate this, you’ll be well on your way to financial freedom. Living by the “seven golden rules” will help.

About the author: Lorraine McGee, CFS, CWS, is vice president and relationship manager for Key Private Bank in Central New York. She may be reached at either 315-425-8609 or [email protected]. This material is presented for informational purposes only and should not be construed as individual tax or financial advice. Please consult with legal, tax and/or financial advisors. KeyBank does not provide legal advice. 

Keys to effective wealth management

To say the way to build wealth is to not lose money is like saying the journey of a 1,000 miles begins with a single step. Both are true, but what it takes to truly accomplish either is much more nuanced. The following wealth management principles are important pieces of a sound wealth management strategy:

Estate planning

Even if your current estate is not subject to the estate tax, estate planning is important for most individuals and families because it can help address important family issues and ensure your wishes are carried out if you die or become incapacitated. Non-tax related questions every individual should ask should include:

• Do I want input on where I go and who would take care of me if I become incapacitated?
• Do I want input on who would take care of my minor children and how the funds would be managed for them?
• Do I want my assets to go to the people or organization I choose when I die?
• Do I want to limit the amount of resources that would be available or would have to be used to provide for my long-term care?
• Do I want to avoid the costs, time and public exposure that probate exposes my family to?

Financial planning

A successful financial plan integrates personal goals into a diversified investment portfolio that takes into account all liquid and illiquid investable assets. Tactical shifts in allocation can proactively capitalize on market developments but should be implemented within the framework of your long-term strategic allocation plan.

Risk management

It’s important to identify potential risks to your family’s wealth. Effective risk management strategies deal with these risks and offer solutions to protect and preserve your wealth and provide you with the comfort of knowing your family will have protection in place for the future should you die or become incapacitated. Common risk management products include life and/or disability insurance and are geared toward income replacement. Other asset protection strategies include gifting, contractual arrangements, trusts and business entity formations.

Tax management

Taxes can be imposed at the individual, trust, estate and business-entity levels, and they can impact almost all aspects of your financial life, from business and investment income to wealth transfer and estate planning techniques. Tax planning can help you estimate future income and liabilities so you can minimize impacts, assess charitable giving strategies and plan beneficiary designations.
Speak with an advisor you trust to start this process. Implementing a Plan early on, and reviewing it often to ensure the plan still encompasses your needs and goals as your life and circumstances evolve, strengthens your financial plan and provides a solid future for you and your family.