How to Create a Financial Plan for Long-Term Wealth - Trust Point

How to Create a Financial Plan for Long-Term Wealth

Man and woman looking at a computer to create a financial plan

While everyone would like to build wealth quickly, the reality is that it takes time, careful planning and thought-out execution. There are several important elements that should be used to develop a financial plan, which will serve as a roadmap to wealth. The Trust Point team can help guide you through these key pieces more in depth, but let’s take a look at how to get started.

Establish Goals

Before you build your financial plan, it’s important to lay out both short-term and long-term goals that will help inform your planning process. For example, if you have the short-term goal of paying off your credit card debt, that will impact your budget and how you structure your debt elimination strategy. Setting these financial goals not only helps keep you on track with your finances, but also keeps you motivated in working toward the future you envision for yourself.

Adhere to a Budget

Having an itemized budget that tracks your spending is key to building your wealth. One rule of thumb many follow when creating a budget is the 50/30/20 strategy. Each month you budget 50% of your budget for necessary expenses like mortgage or insurance payments, 30% of your budget on your “wants” — like the money you spend on travel, clothes or a new car — and 20% of your budget goes to your savings. As you continue to accumulate wealth, you should increase the percentage of money you are saving over time, as it will benefit you in the long term. Within your budget you should also set up an emergency fund — experts recommend having three to six months of your salary built up over time in case of a major life event like losing a job or loved one.

Eliminate Debt

Carrying debt for a long period of time limits your financial flexibility and means you are paying more on interest. When building a financial plan, you should lay out a strategy for how you will pay off your debt. Some individuals choose to eliminate debt with the highest interest rates first, as it prevents larger payments in the future, while others choose to pay back their smallest debt first and gradually pay off their largest one. No matter what strategy you choose, pick one that you can maintain, as missing payments will harm your credit and hinder your financial growth — especially as you move into retirement.

Invest For Growth

Making smart and steady investments is essential in creating long-term wealth. Most financial experts agree that having a diversified portfolio that has annual growth, is an important way to approach investing. When you diversify your portfolio, you are invested in a variety of different industries and asset classes, which mitigates risk and helps you weather potential downturns in the long-term. Working with a financial advisor or investment manager is the best way to ensure you are investing for longevity. These professionals can help you choose investment vehicles that are meant to grow over time and prevent you from over-concentrating in one asset class.

Prepare For Retirement

No matter your age or financial situation, you should be planning for your retirement because the earlier you start, the more financially secure you will be in the long term. One of the easiest ways to do this is by contributing to a 401(k) plan and taking advantage of employer-matching — essentially doubling the money that you are putting into that account. Contributing to an Individual Retirement Account (IRA) is also another great method to plan for retirement, and offers tax benefits that will be advantageous in the long run.

Most financial advisors agree that individuals should save 10-15% of their income toward retirement each month, while increasing that contribution by 1-2% annually. As you become more independently wealthy, you can increase that percentage even more to maximize your savings.

Set Up Your Estate

Having an estate plan ensures that the wealth you have built will pass on to your family. Thinking in the long-term, you need a proper plan that legally and clearly lays out your wishes for after your death. You should consider drafting a will, appointing a power of attorney, evaluating estate taxes, and establishing a trust will also ensure your wealth will continue to benefit your family even when you’re gone. Just like your financial plan, you should review your estate plan periodically to make sure your designations still align with your wishes.

Review Your Plan

As you go through life milestones — like getting married, finding a new job, or having children to name a few — your financial situation and your goals for the future evolve. It is key that as life changes, you adjust your financial plan and the way you are saving and spending your money. Re-evaluate your plan at least once a year with your financial advisor to determine what changes need to be made as you work toward long-term wealth.

Partner with a Professional

Establishing a financial plan is a challenging task to do by yourself, and working with a financial professional can help take the difficulty out of financial planning. When you work with a Trust Point planner, you are working with a fiduciary who will provide advice that is in you and your family’s best interest, and who will partner with you to create a financial plan that is customized to your goals. Call us at 800-658-9474 or fill out an online contact form to get connected with our team.

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