You are no doubt a hard worker. You do your best to get to work every day, do overtime and impress your boss so that you get promoted and get a bump in pay. You strive to get a second or even a third job in order to increase your income.
While you may earn a lot, all your hard work will be put to waste if you can’t even protect your wealth. If you’re living from paycheck to paycheck or can barely spare money for savings, all your hard-earned riches are going to go down the drain. When that happens, you could possibly put your future and that of your family in jeopardy.
Thus, it’s essential to protect your wealth. Here are ways to help you do just that:
Follow a budget.
Creating and following a budget is the first step that you need to take to guard your wealth from yourself. If you don’t establish a spending plan and follow it to the letter, you are essentially letting your money control you. When that happens, your dollars will have a life of their own. They will just go where they will. In the end, no matter how much money you bring home each payday, you’ll constantly wonder exactly where all they went.
Having a budget is like having a blueprint for your money. When you have a guide on the things you should spend for, you won’t wonder why you’re left with only a few dollars days before the next paycheck arrives. Every penny will have its place and you can be sure that your future is secured.
Another way to protect your wealth from yourself is to automate your savings. There are many avenues for you to do this. One way would be to participate in your employer’s 401k plan. When you sign up for your employer’s retirement savings plan, the company will just automatically deduct your contribution each month and put the money straight to your retirement account.
The second method by which you can automate savings is to set up an arrangement with your bank wherein it will automatically deduct the amount you want from your checking account each month and transfer it to your savings account. This is a good arrangement for your emergency savings fund and funds you may want to set aside for short-term use.
Automating your savings safeguards your wealth because the money you’ve allocated for yourself or your children’s future will go to the account you’ve set aside for the purpose.
Never go without health insurance.
Healthcare is expensive. It is even more expensive if you are paying for it from your own pocket. If you suddenly got sick and have to undergo a major operation, for example, it’s easy to decimate whatever savings you have set aside when you don’t have health insurance. Consider this: A three-day hospital stay can cost around $30,000. What if you stayed longer? Without health insurance and with your savings already wiped out, you can imagine where you would resort to next: Loans which would put you deep in debt.
Buy an umbrella policy.
You should shield your wealth from potential lawsuits and liabilities that won’t be covered by your auto or homeowner’s insurance. An umbrella policy will achieve this. Experts recommend that you should have personal liability coverage that is equal to your current net worth. If you have already accumulated $5 million, then your umbrella policy should equal to this much because in the event that someone brings you to court, the litigation costs are going to be shouldered by the insurer.
Decide how you are going to share your wealth with your spouse.
It’s easier to manage your wealth when you are single because you’ll only have yourself to think about. The ballgame changes when you already have a partner or spouse. Thus, even before you tie the knot or decide to merge your finances, you should discuss it thoroughly. A great deal of trust is needed if you have plans of merging your finances—and you have to be prepared for the fact that any amount you put in a joint account with your spouse makes the other spouse own half of it. Consider keeping your accounts separate. If you have substantial assets to protect, you can also think about a prenuptial agreement. You’ll be glad you took steps to protect your wealth from your spouse (no matter how cruel this may have seemed like at the time you signed the prenup) when your marriage goes sour and divorce seems like a real possibility.
If you have a business, safeguard your assets and protect yourself from lawsuits by forming a corporation or LLC.
Whether you are operating a sole proprietorship or a partnership, you are putting your assets at risk. Make sure that you safeguard your wealth and provide yourself with legal protection at the same time by forming an entity such as an LLC or a corporation. In the event that a client sues you, it’s the assets of the corporation that will be put in jeopardy but not your own.
Diversify your investments.
You’ve heard the saying: Don’t put all your eggs in one basket. It’s time-tested advice that has held true throughout the years. If you want to protect your wealth, don’t invest only in one asset class or only in different companies in the same industry. Diversify. Having investments in stocks, bonds, mutual funds, real estate and cash will ensure that when one type isn’t doing well, the performance of your other asset vehicles will serve to buffer the blow. Investing in various industries will also do the same thing. When the transportation industry isn’t doing well, for example, perhaps the real estate or some other industry will be on a swing, serving to mitigate the slide.
Choose investments that are tax-friendly.
One of the best ways by which you can protect your wealth from the Internal Revenue Service is by selecting investments that provide tax benefits. For instance, investments placed in a 401k are allowed to grow tax-deferred. This means that they are only taxed when you withdraw them during retirement. With tax-deferred investments, your earnings can accumulate much faster. There are also investments like Roth IRAs that are withdrawn tax–free when you retire. College savings plans for your children also provide tax advantages. If you are not sure about which investments are right for you, talk with a financial adviser who can guide you on this matter.
Avoid guaranteeing the debts of others.
Your best friend comes to you asking that you co-sign his business loan application. He said you won’t face any problems because he’ll certainly make good on his word that he’ll pay. You agree. He doesn’t honor his obligations and the bank goes after you. If this kind of scenario makes you cringe then avoid guaranteeing the personal debts of others as much as you possibly can. You may be more lenient with your child but with that of other people, it’s a ticking time bomb. Not only will such an arrangement risk your wealth, it will also endanger the relationship you have with that person. The best thing that you can do if you have the money to spare is to donate whatever you can afford to his cause and consider that money as a gift freely and sincerely given. Co-signing a loan is something that you should strive to avoid if you want to protect your wealth.
Have an estate plan.
No matter how much wealth you have accumulated, it’s important to have an estate plan. This will protect your beneficiaries from having to pay huge estate taxes in the event of your untimely death. If your heirs don’t have the money to pay the estate tax, they will most likely have to dispose of some assets in your estate to pay off the obligation before they can get their inheritance. Not having an estate plan means you are not protecting your wealth against the tax man.
Work with an estate planning attorney to determine how you can protect your wealth for your beneficiaries when you die. The lawyer can suggest that you start giving them gifts each year to lower or even eliminate the estate tax liability or he may suggest setting up a trust fund. He may also recommend that you get a life insurance policy that will cover the possible estate tax liability of your heirs.
Besides protecting your assets from the state, estate planning is also important because it still gives you control of your wealth even from beyond the grave. When you die intestate, state laws will determine how your wealth will be distributed and this may not always be in accordance with your wishes when you were alive. Moreover, it also gives you the opportunity to assign a guardian to your minor children, giving you the chance to appoint someone you trust to guide your kids and handle their finances until they grow.
No related posts.
No related posts.