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Writer's pictureBill Shelmon Jr

For a Solid Wealth Plan - Three Things to Know



You may be wondering, what do I need to have a solid wealth plan? We have talked about paying yourself first and consistency with your investing over a long period of time. All of these are important, but you need to consider a total strategy that will set you up for a secure financial lifestyle and an abundant future. There are three things that everyone needs to have a solid wealth plan.

There are three key financial buckets that are needed to have wealth-building success. The three things that are needed for a solid wealth plan are: 1) Emergency Savings, 2) Protected Investments, and 3) Growth Investments. All three are important and all need to work together to achieve your long-term financial goals. First, let’s explore these three financial buckets, then we will find out why it is important to have all three as part of your financial wealth-building strategy.


The first bucket needed before any wealth-building starts, you must have your emergency savings in place. Emergency savings helps us to handle unexpected circumstances that could throw our financial plan off track. Things like appliance breakdown, a car flat tire, or a close relative in need of a short-term hand up; we want to be able to handle these things without interrupting our investments that are in place to help us grow our wealth. Some say you need enough to cover three to six months of expenses. If this is too much to achieve right away, you need at least one thousand dollars available to handle these unexpected events that happen to us all. Also, once you have to spend from your emergency savings, please replace the money to get you back to your level of security to prepare for the next event.


Second, the next bucket you need to have as part of your wealth planning is protected investments. As we discussed, these are investments that protect your principal or the initial amount of money that you use to make the investment. These are more conservative investments that are more reliable and do not fluctuate wildly with financial market changes either up or down. These are more predictable investments that you have in place to handle your short-term goals (5 years or less) like saving for a new house, expenses for continuing education, or starting a new business. Since it is intended for a short-term goal, we are not so concerned about large increases in the value. The priority here is more with safety. We want to make sure the money is available when we needed it.


The third bucket for a successful financial plan is the growth bucket. This is where we look to achieve our high growth potential from our investments. These are higher risk investments, but it also offers the higher reward. Patience is needed with these investments. These investments often fluctuate with the financial markets either up or down, however overtime these investments typically outperform the other two buckets in your plan. These investments need to be in place for five years or more to really see the benefits. The right investments in this bucket will give you the highest contribution to your long-term financial success.


Now, let’s explore why all three of these investment buckets are needed for a solid wealth plan. The main reasons are diversification and flexibility. As is often said, you do not want to put all of your eggs in one basket. Emergency savings are needed so that you do not have to touch your protected or growth investments when an emergency happens. You want to keep these investments in place and untouched so that they can continue to growth to achieve your wealth-building goals. The protected investments are a good alternative to having all of your investments in the high growth area. When high growth investments might be going down during a declining financial market, the protected investments will maintain their value to keep you on track to meeting your short-term priorities. Also, you can rebalance between your investment buckets. For example, protected investments would give you the option to add more to your growth investments when the growth investments might be available at more attractive prices. Additionally, when the growth investments have high appreciation, you can rebalance or move some of these increases to your protected investments to continue to build your nest egg. Without all three financial buckets in place, you lose the diversification and flexibility to move between these three buckets as needed. Additionally without all three in place, you will not have a complete wealth-building plan.


Now, how do you decide the right amount for each bucket? Paycheck to Wealth can help you navigate the different financial buckets that are needed to have a solid wealth plan. Contact us today to learn more and to get your wealth plan up and running to meet your financial goals.

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