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How To Begin Building Your Own Pot Of Gold

17 March 2015 in Investing Insights

The fun and festive spirit of St. Patrick’s Day includes a great many things – parades, shamrocks, pints of Guinness, corned beef and cabbage, leprechauns, and glittery visions of colorful rainbows leading to overflowing pots of gold.

Want to achieve your own pot of gold? Anything is possible. You can start paving the way to a better financial future by following a few simple steps.

 

 

 

7 STEPS TO BUILD YOUR POT OF GOLD

1) Start Saving For Retirement – The earlier you can start saving for retirement, the better. Start off by familiarizing yourself with the 6 Myths Of Retirement Planning. There are a lot of costs to consider in retirement and depending on your location and financial health, Social Security benefits simply many not cover all of you monthly expenses. Determine how much you will need in retirement and start saving early so you are not caught unprepared.

2) Look For Ways To Pay Fewer Taxes – A lot of people cringe during tax season because they feel overwhelmed or get hit with unexpected taxes. Fortunately, there are ways to make filing taxes less painful such as understanding common tax forms for investors. Aim to file state and federal tax returns on time to avoid unnecessary late charges and penalties.

Take advantage of tax deductions such as charitable contributions, mortgage interest deductions, tax loss harvesting, and business related expenses if you are self-employed or own a business. You may also be eligible to reduce your tax liability through qualified retirement contributions. For example, the 401(k) contribution limit is $18,000 and the IRA contribution limit is $5,500 for 2015. Both pre-tax contribution retirement vehicles can help build tax-deferred wealth.

3) Analyze Your Spending Habits – Expenses can add up quicker than you may realize. Do you really know how much you’re spending each month? Look across all of your accounts to see just where all of your money is going. Perhaps you spent $100 in coffee that you could aim to cut by half, or maybe you’re paying for cable, Internet, and phone service separately and could bundle them together for added savings. Cut back on groceries by creating lists and only purchasing the items on those lists when you’re at the store. Taking a little extra time to make lists can help you avoid impulse buys and keep more money in the bank.

Mobile coupons are also a convenient way to save on the go. Just be careful not to sign up for alerts at stores that are focused on selling items you may want but don’t really need such as electronics, jewelry, and clothes. Avoiding the temptation should make it easier to keep your spending on track and within your budgetary goals.

4) Set Goals And Stick To Them – Accumulating a pot of wealth takes time and hard work. Thus, patience, discipline, and persistence are important characteristics to maintain on your journey to building wealth.

Work on setting specific goals such as reducing expenses by X amount, paying down a certain amount of debt each month, increasing investment contributions each year, and reducing your exposure to unnecessary fees.

Take Amy Kroezen and Jude Boudreaux as an example. This inspirational couple was making less than $70,000 a year combined and were struggling with debt. Wanting to turn their finances around, they decided to change their spending habits and start paying down debt aggressively. In roughly 5 years, they were able to pay off over $100,000 in debt. How did they do it? They downsized to a smaller apartment closer to work, cut out all unnecessary spending, reduced their living expenses down to about $19,000 a year, and put the remainder toward paying off their loans.1

Whatever your financial goals are for saving, investing, reducing expenses, and building wealth, it’s helpful to set reminders to monitor your progress on a monthly, or quarterly basis.

5) Curb Your Debt – Life is unpredictable. And sometimes overspending or unexpected life events can lead to difficulties with debt. If you or a family member are ever down on your luck, it’s best to take action instead of trying to hide from the serious issues at hand.

Put together a budget, contact all of your creditors up front, try to lower your mortgage payments by applying for a refinance due to hardship and consider reaching out to a debt consolidation service. There are also many nonprofit credit counseling service organizations that can provide assistance with your specific situation. The Federal Trade Commission is a good place to start and learn about various debt management solutions and how to stay protected against debt scams.

6) Explore The Sharing Economy – There are a lot of different ways you can utilize social sharing to leverage the Internet and potentially earn extra income. Some people are increasing cash flow by using their spare time to become drivers through rideshare programs, renting out their homes, and utilizing the web to sell homemade crafts.

7) Grow Your Investment Portfolio – Even small amounts can have a large impact when it comes to investing. Using a hypothetical example, say John spends $4 on coffee a day (that’s $1460 a year). If he gave up coffee and invested that money instead, using an 8% return, he could accumulate $25,994 in ten years and $440,198 in forty years. That’s a lot better than drinking coffee!

Investments compound as well, which is another great reason to start investing as early a possible. The power of compounding means that contributing small amounts over a longer period of time can help accumulate more wealth than larger contributions over a shorter period (assuming the same total contribution amount and an equal rate of return.) Diversifying investment holdings, as well as minimizing investment expenses, are also important to growing an investment portfolio.

HOW BIG SHOULD YOUR POT OF GOLD BE?

If you follow the above guidelines, you’re probably wondering what could be waiting on the other side of the rainbow? Just how big could that pot of gold grow? The answer is largely up to you and how you choose to save, spend, and invest.

Think about when you want to retire. Then consider how much money you want to have in retirement. Let’s say Sarah is 30 years old making $120,000 a year and would like to live off 70% of that a year in retirement, which is $84,000. If she works until age 67, she could receive approximately $33,000 from Social Security. One way she may be able to achieve the remaining $51,000 for her yearly goal, would be through earning 4% dividend income on a $1.275M portfolio. Your desired situation could be much different and you may also be comfortable drawing down principal during retirement.

Estimate how much you anticipate spending for living expenses, healthcare, travel, etc. and run the math on various scenarios. Next, calculate how much you should contribute each year from now until you retire as you move toward that goal. It may take adjusting some of your current expenses and raising your contribution percentage slowly over time to get there. Whatever the case, follow your rainbow long enough to help you get to where you want to be without surprises.

Motif Investing offers an assortment of investment products and services to help you invest for your future. Discover your Investing DNA today and select motifs that suit your investment needs and time horizon as you build your retirement portfolio.

The examples provided above are hypothetical and made available for informational purposes only and are not invested to be suggesting of investing strategies that might be right for you. Motif Investing does not offer any tax, legal, or estate planning advice. Before making investment decision that could impact your tax and estate planning strategies, you should contact your tax, estate planning, and legal advisors. You are responsible for all investment decisions that you make.

1 US News, http://money.usnews.com/money/personal-finance/articles/2014/01/02/how-one-family-paid-off-118000-in-debt

Tags: retirement
  1. Brian
    17 Mar at 4:22 pm

    I love St. Patrick’s day. It definitely makes me think of how I can build more wealth. I’m investing more into the markets this year since I have some cash flow freeing up and I’ll be maxing out my 401k as well. I’m trying to teach my kids about investing too and the importance of saving.

    Reply
  2. 20 Mar at 7:27 pm

    I wonder if it helps if people can visualize their pot of gold producing tremendous freedom? When you don’t know what you’re shooting for, it’s hard to get motivated.

    But I can tell everyone who is trying to build that financial nut to something substantial that it’s absolutely worth all the sacrifice of saving and investing. Life is too short to be stuck doing something you don’t love.

    Sam

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