Build Your Wealth Management Skills
In order to become and remain wealthy, consider mastering the basics of personal finance, building skills in your chosen career and in life’s common sense practicalities, learning basic and advanced investment techniques, trying out entrepreneurship, as well as expanding your horizon to understand how the really super rich population does things.
Master the Basics of Personal Finance.
The chorus of “16 Tons” a song attributed to Merle Travis and referring to coal mining, is
You load sixteen tons, what do you get?
Another day older and deeper in debt.
Saint Peter, don’t you call me, ’cause I can’t go;
I owe my soul to the company store.
If you don’t master the basics of personal finance soon after leaving the nest, you risk getting into a similar cycle with the current day company store (credit card companies).
What are the components you might want to master? They include:
- Being able to generate income.
- Learning and practicing cost containment (practicing delay of gratification, comparison shopping, having emergency funds available and etc).
- Understanding and controlling your credit needs – managing your credit score, your credit card account terms and your credit card expenditures.
- Understanding mortgages, car loans, and other types of credit.
- Reaching agreement on and practicing record keeping activities, such as how couples will handle money (pooled, split or a combination) and who will do what on the tracking and balancing activities (balancing the checkbooks, tracking investment accounts and securities, bank fees, credit card, debit card and electronic transfers and etc).
- Coming to terms with the need to budget (learning to live within your means).
- Understanding how cash flow (the amount your income exceeds your outflow in a given period of time) affects you.
- Understanding how to calculate and file your own taxes (yes – even if you have someone else do them!).
- Understanding and managing the risks that life throws your way (risk of fire, theft, personal injury, heath failure, not being around to provide for your family or other people suing you over something – all of which can be mitigated with insurance).
During this period you could consider jointly developing short and intermediate term plans to get where you want to go – with your significant others. A set of short term goals (such as in a 6 month plan) provides you with the satisfaction of seeing progress. Longer term plans (2 or 5 years out) help guide you toward your final wealth destination.
You may not have excess at this stage to really begin investing but you can practice investing with a pretend portfolio or you can join an investment club that is geared towards learning only.
Your goal at this stage could be to learn enough about the basics to understand how to get positive cash flow which can eventually provide you with passive income.
Build your skills and reputation with your networks.
Enable or protect a steady income by building your skill in an occupation. After you have sufficient expertise, help more junior team mates by mentoring them and contribute to pertinent blogs and online commentary or teach a class at a local center or school. This establishes you as an expert in the field and with your network of peers, which facilitates being able to get or keep that next job or raise.
Take advantage of learning opportunities and work challenges to build your ability to communicate successfully, manage other people, and learn how to recognize and deal with negotiations and politics.
Pick a work mentor to watch and learn from.
Learn About Investing.
To build financial wealth, most people find it necessary to do something other than bring home a salary from their job. Most people attempt to invest their assets to make them grow bigger. Eventually they hope that their investments generate passive income (income they don’t have to go to work to earn).
First, learn the basics of investments. Things to learn can include:
- Banking account types, fees and services;
- What are the various financial markets (DOW, NYSE, etc);
- What is a mutual fund and how to evaluate which ones you should buy;
- How to look up corporate stocks (how to read charts, what are price to earnings ratios, financial ratios used to evaluate business health, and etc.);
- Web sites to use to analyze investments;
- Market psychology and how it affects whether the markets go up or down;
- How to select, and use a financial broker or advisor and;
- Basics of real estate investing in personal residences – such as how to select a location, a real estate broker, how to evaluate a property and it’s income potential.
At this stage, you might consider practicing investing in low fee mutual fund index companies – but only with money you don’t need for everyday living or emergency fund building.
Next, learn advanced investment topics. Things to learn here can include:
- Advanced bond concepts;
- Margin, option, and futures trading;
- Short selling;
- Investing in foreign markets using American Depository Receipts;
- Financial statement analysis, ratio analysis, technical analysis and
- Advanced real estate investments (such as commercial properties) and techniques (such as buying tax certificates).
Now that you have mastered the basics and started your investment portfolio, your goal can be to effectively utilize passive income to increase your wealth, within your own risk tolerances. You should only indulge in these advanced investment opportunities with money you can afford to lose.
Try out entrepreneurship.
According to authors of The Millionaire Next Door, 2/3 of the millionaires in the United States are self-employed.
You can start slow with just three steps:
- Get an idea for a business and develop it into a business plan
- Get a mentor
- Take classes on business topics
Expand your horizon – learn how the super rich people operate.
Most of us never see, hear about or experience opportunities available to the super rich. Knowing what they know may help you think of ways to operate that you hadn’t yet considered.
Things to learn about can include:
- Investments available to them – such as hedge funds, commodities, private equity and off shore, investments as well as individual collectables such as art objects, planes and cars
- Mangers available to them – who are the best money managers, is there any way for you to be able to utilize or emulate them?
- Techniques available to them – such as tax saving strategies and entities to use such as corporations or partnerships
You might also be interested in understanding what a financial management company, private bank or multi family office can do and how it relates to your level of wealth.
Making the Most of Your Money by Jane Bryant Quinn copyright 1997 published by Simon & Schuster
The Millionaire Next Door – The Surprising Secrets of America’s Wealthy by Thomas J. Stanley, Ph.D. And William D. Danko, Ph.D. Copyright 1996 published by Simon & Schuster Inc. Longstreet Press, Inc.