Financial wealth is built on three foundations — income, insurance and investments.

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So, have you created your financial-planning resolutions for the New Year?

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They say that to build a good financial foundation you must have three major items to ensure your long-term stability and to get to retirement debt-free and wealthy. Some have even coined it as a “three-legged stool,” for without all three, it would topple over just as your financial plan would not be complete without all three foundations laid out over your life.

So, let’s build your stool for 2022 to ensure you’re all set for the future. The three foundations for financial wealth are: income, insurance and investments. Sounds pretty simple, right? OK, let’s look at each one together:

Income

Well, everyone knows you have to work to survive, that’s a given. But, are you earning what you are worth or just what you believe is good enough? Never underestimate your earning potential since the fastest way for you to build wealth is your ability to earn more. You are the most important asset you have.

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Many people think there is a ceiling to their earnings, but this is a mistake. Successful people always believe they are worth more. If their employer is not giving them the salary they feel they deserve or the promotions they want over time — they quit and move to another company that will.

In relation to your entire life, you only have a small window of time to earn your fortune and build a career, so do it. If you are not happy and feel you are worth more, make the changes you know you should.

Another part of income is getting a portion of your take-home pay to start working for you. Essentially you want to pay yourself first. This can be done by contributing to an employee pension or savings plan. If you are lucky enough to have your employer match a portion of the contribution, then definitely take advantage of this.

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Insurance

When we advised clients in the past about protecting their future, we always used the acronym WILT, which stands for Wills, Income Protection, Life Insurance and Tax Planning. You need a will to ensure your estate is divided the way you wish, and all minor children are taken care of.

Income protection is often overlooked and considered too costly by most who often feel they have sufficient disability insurance with their employer. Most people concentrate on the life insurance only, but it is important to remember that most accidents do not result in a death, and you are more apt to be badly hurt or disabled and unable to continuing working.

Tax planning is the last asset-protection piece. Insurance is a great tool to pay for capital gains tax that your estate will owe upon your death. Or if you are a business owner, it provides an investment tool with benefits that are protected against creditors. When you are young, you should always consider buying into a participating whole life insurance policy that grows over time and has a cash-surrender value that you could access when you retire.

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Investments

The last leg of the stool is investments. This could be investing in traditional tax incentive products like RRSPs, TFSAs or even non-registered accounts. If you prefer, you could completely stay away from the stock market and invest in real estate, as a primary residence and/or rentals. Monetization of money is the key to building wealth.

You will never be able to earn and save enough in your lifetime and if you could it would be beaten down by the cost of inflation. This is why you have to invest in assets that will appreciate and grow over time.

Debt is inevitable when investing, but you should always have a plan in place, one that gets reviewed annually, to have it eliminated by retirement. No one should ever enter retirement with debt.

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Investing could also mean investing in yourself to better your future prospects and increase your income. Remember, it is not practical to think that once you graduate school you can stop learning.

Unfortunately, there is always someone else out there who has gone that extra bit further to better themselves and will land the job or position you wanted. Going into school debt is a reality for many, even for people in their 40s, many of whom now realize that they really do want more out of their careers, to set themselves up for their 50s and 60s.

Don’t ever be afraid to step back a little to be able to leap forward. Build your three legged stool and guaranteed you will retire debt-free and wealthy.

— Christine Ibbotson has written four finance books, including the bestseller How to Retire Debt Free & Wealthy. [email protected]

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