Wealth Accumulation Strategies

A successfully wealth management strategy requires realistic and useful financial goals. Your financial goals are the signposts on the road-map 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 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.

According to the 2006 Retirement Confidence Survey, less than half (42%) of working Americans have made 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 probably 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, because 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 home ownership. 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.

Manage Your Credit Wisely

Managing your credit well could boost your wealth management portfolio. For example, if you manage your credit responsibly, you are less likely to carry credit card debts and that should save you thousands of dollars in interest payment alone. Also, lower debt means higher credit score and that should save you on every single loan that you apply. You will be surprised to know that just a 50 point drop in your credit score can cause you interest rate to jump more than a point. now that’s $1,000 extra in interest on a $100,000 loan. One of the main reasons why people end up in debt is to have a large credit available to them. If you have 10 credit cards with $20,000 in credit limit available to you, chances are that sooner or later you would be tempted to use that credit line and become a victim of the credit card game. Also, once in debt, are you consistently paying only the minimum each month on your credit cards or other debts? This habit can be a big “red flag”. If you can pay only the minimum now, do not increase your debt load. Also, keep in mind that, when you pay only the minimum amount each month, you are paying high finance charges on the unpaid balance. This costs money and delays the achievement of financial goals.

Periodically, get a copy of your credit report and check it for accuracy and completeness. This is especially important before making large purchases where you plan to use credit, such as for a car loan or a mortgage. In many cases credit reports have minor inaccuracies that need to be corrected. Sometimes there are errors that might result in your being turned down for a loan (to correct an incorrect credit report, use the form provided by the credit reporting agency).

Responsible and Sensible Investment Management

Your Retirement account doesn’t need to be your only investment. Remember, you don’t have to be a high net worth, high-income investor to have an investment plan. Even if you have only a small savings account, investments can become part of a long-term strategy to achieve specific goals. Make sure you understand the different investment options and your risk tolerance before you invest. Being involved in investing will make your a more informed and serious investor in long run and it will help you make better decision even with your retirement account as well. A diversified investment portfolio can be developed with the help of an investment adviser or financial planner. If you can’t afford one, you can go online and educate yourself on the basic rules of investment and wealth management.