Step 1: Define Your Wealth Dream
Vision and Goals:
Start by envisioning your ultimate financial goal. Imagine a place where money and time are no constraints. Clearly define where you are, who you're with, and what you're doing. Write down this vision in detail to solidify your commitment.
Quantify Your Dream:
Determine the financial requirements to achieve your desired lifestyle. This includes personal assets that bring joy and fulfillment, even if they don't generate financial returns. Work with a wealth strategist to calculate the costs and required net worth to support your dream lifestyle.
Step 2: Understand Your Current Financial Position
Assess Financial Health:
List all your financial assets (those that generate income) and liabilities. Calculate your financial net worth by subtracting liabilities from assets. Use a bookkeeper to maintain accurate records and ensure a clear picture of your starting point.
Determine Required Return:
Estimate the rate of return needed on your investments to achieve your dream within your desired timeline. For a 30-40 year plan, a 3-7% return may suffice. However, for a shorter timeline (7-10 years), aim for a 15-40% return.
Step 3: Specialize and Leverage
Specialization:
Focus on areas where you have or can develop expertise to achieve a higher rate of return. Specialization allows you to control the investment, reducing risks and increasing returns. This could be in real estate, business, or other investments where you have significant knowledge and control.
Leverage:
Use other people’s money to amplify your investment potential. By borrowing funds to invest, you can significantly increase your returns. For instance, leveraging $20,000 with an $80,000 loan and investing in real estate can provide much higher returns than investing the same amount in mutual funds.
Step 4: Minimize Taxes
Tax Strategy:
Taxes can significantly impact your wealth-building journey. The goal is to legally minimize taxes by taking advantage of incentives provided by tax laws. These incentives are designed to encourage activities that benefit the economy, such as investing in real estate or starting a business.
Step 5: Implement and Monitor
Action Plan:
- Vision: Clearly define and quantify your financial dream.
- Current State: Assess and document your current financial position.
- Specialization: Identify and invest in areas where you have expertise and control.
- Leverage: Utilize borrowed funds to maximize investment potential.
- Tax Efficiency: Work with a tax advisor to implement strategies that minimize your tax burden.
Regular Review:
Periodically review your financial strategy with your wealth and tax advisor and bookkeeper. Adjust your plans as needed to stay on track towards achieving your wealth dream.
By following these principles, you can achieve financial freedom and build a lasting legacy faster than you may have ever thought possible.
Want to learn more about how you can make way more money and pay way less in tax? Book a call with the team at TFW Advisors® today!