Wealth Accumulation

A successfully wealth management strategy requires realistic and useful financial goals. Your financial goals are the signposts on the highway to a secure financial future. They serve as your guide to your financial success and it makes perfect sense to keep your goals very specific in view so that you you can direct your energies toward achieving them. Financial goals are important because they help us to organize and direct our financial lives, providing a framework for decision-making. They can help us cope, provide some control in an environment where many things seem out of control, and help us visualize our financial future. Once you have understood the importance of proper goal setting, your next step is to figure out the important aspects of wealth accumulation.

Here are some of the important aspects of wealth accumulation that will help you measure where you stand currently and how can you improve your future financial situation.

Retirement Planning: Planning for retirement is challenging and even with sophisticated financial planning, you could end up in financial trouble. Bad things can happen but that doesn't mean that you should give up on your financial planning. Retirement planning is a like a race and earlier you begin, the longer you will have to accumulate funds and capitalize on compound interest. A plan designed to meet specific retirement goals may be separate from or part of the investment building block. You may not see 8% or 10% returns making much of a difference during your the early days of your retirement fund but think of the golden years when you have accumulated a couple of hundred thousands in your retirement account and you would notice that 8% to 10% returns would make a huge difference. Here is an example. If you earn $50,000 and save 10% of your paycheck in your retirement plan, you're putting away $5,000 a year. Now 8% return on $5,000 is just $400 but its impact is huge when you consider compounding and 30 years of investing. Let's take a look at the effect of compounding and investment timeframe. For the sake of simplicity, let's assume that you have accumulated $300,000 in your retirement funds in 30 years. Now,at this stage with 10% return, you're earning $30,000 a year in interest alone. On top of that, this $30,000 will earn you an extra $3,000 next year if you assume same rate of return.

According to the 2006 Retirement Confidence Survey, less than half (42%) of working Americans have made a retirement savings calculation and 70% have begun to save for retirement. Unfortunately, this means that 30% of workers have not yet begun saving. Most experts believe that regular, systematic savings is a habit that is best established early and maintained, not only throughout the working years, but into the early stages of retirement since people are living much longer. Today, many people spend as many years in retirement as they spent in the workforce. In the past, financial experts have counted three distinct sources of income in retirement: Social Security, company pension, and personal savings. Now with the growing concern over the future of Social Security and reduction in benefits offered by employers, and the low personal savings rate, it may be impossible to some people to survive their retirement years without making drastic changes such as reverse mortgages and debt. As you can see, this changing environment makes retirement account even more important.

Owning a Home: If you're like most American, your home is your is your biggest asset. Home ownership takes much more than making a few mortgage payments. You have to spend money on the maintenance and make other changes to keep in up to date and competitive in real estate market. Unfortunately, for some people, home is their only investment. Given the low appreciation rate of real estate in some areas, it is probably better to think of purchasing a home as buying shelter, not as an investment that you expect to rapidly appreciate (increase in value). Home equity, the dollar value of a home in excess of the mortgage owed on it, is considered an asset against which you can borrow. This strategy must be used with extreme caution, however; you could lose your home if you do not repay the amount borrowed. In recent times, growing number of people are using home equity loans to pay off credit card debts. This is a dangerous trend. Remember, if these people don't make fundamental changes in their spending habits, they will be in credit card debts again and this time they will have their homes on the line as well.

If you own a home, make sure you make responsible decisions to protect your investment. Home equity loans are easy but they can easily destroy your dream of homeownership. If you haven't saved much in your retirement funds, home is one of the assets that you could use to help you pay for your living and medical expenses in retirement. But if you lose it long before you reach retirement, you may not have much choice other than adding extra burden on your children and loved ones. On the other hand, if you don't own a home, it may be a good idea to look into your financial situation to check if you can afford a home.