Over the course of my career, I’ve had the opportunity to work with multiple self-made millionaires. Though they come from varied backgrounds, these investors have a few key habits in common—ones that you can replicate to build wealth to retire comfortably and hit your long-term financial goals.
My wealthiest clients pay themselves first by systematically putting money into savings with no intention of using it for day-to-day living. They’re also experts at reverse budgeting: living lifestyles that are affordable after both long- and short-term savings are in place. But what can you do, aside from the obvious saving, to secure wealth in retirement?
Let’s take a closer look at some of the strategies deployed by my millionaire clients that can help anyone improve their financial wellness in 2022.
1. Create an organized investment plan
Whether it’s in stocks, bonds or exchange-traded funds (ETFs), my wealthiest clients are diligent and organized about investing.
Setting up a monthly or bimonthly automatic transfer of cash from your checking account into an investment account ensures you’ll automatically invest—and learn to live on your post-investment funds. By employing this strategy, my clients find they don’t actually miss having that money in their cash flow, but it’ll be there waiting for them when they need to make a big purchase, travel, or retire.
Be calculated about your investments: how much risk are you willing to take on, and in what time frame do you need access to your money? My younger clients can take on a little more risk in exchange for significant yields. My older clients often feel more reluctant to take on risk, as they need access to their retirement funds sooner.
Having a solid grasp on their current financial situation, and their future needs, is a hallmark of my millionaire clients. And as a rule of thumb, they aim to save roughly 20% of their monthly income for savings, emergency funds, retirement and investments.
2. Take advantage of all employer benefits
Millionaires don’t leave money on the table. My wealthiest clients know to take full advantage of employer-offered benefits—and you should, too.
Employer retirement match: If your employer offers a 401(k) match, contribute enough money each paycheck to max out that match. This is basically “free” money for you to take advantage of in retirement.
Employer life or disability insurance: Your employer’s group plans can offer significant savings over buying these insurance policies on the market.
Employer Health Savings Account (HSA): HSA contributions are a great way to build wealth, as they are tax-deferred and many employers match your contributions up to a certain amount.
Employer legal services: If your employee benefits include legal services, take advantage of them when you need to prepare estate planning documents, such as wills or trusts. This will save you money in attorney fees.
Employee stock purchase plans (ESPP): If your employer offers ESPP, you can typically contribute a certain percentage of your paycheck to purchase company stock at a discounted rate. This can be a cost-effective strategy for building your net worth.
3. Know your options for tax deductions
My wealthiest clients are always aware of what taxes they pay and how to minimize them. This often includes searching for elements of tax savings in everything from retirement plan investments, to home mortgage interest, to charitable contributions, to college funding and health savings accounts.
To find as many opportunities for tax savings as possible, it’s helpful to consult a financial and tax professional who’s up-to-date on laws and policies.
4. Don’t forget about the short-term
To plan like a millionaire, make sure even your short-term money is working for you. This means maintaining six to nine months of expenses in savings that are both liquid and safe—not at risk to significant market movements.
This reserve fund can be a fairly large amount, and in today’s low-interest-rate environment, it can be challenging to find a reasonable return for these “opportunity/emergency funds” in traditional savings accounts. Because of this, I recommend a tiered strategy:
Tier one: A simple money market or high-yield savings account.
Tier two: An ETF portfolio that invests in short-term maturity securities. While these can fluctuate in value, they typically generate higher yield than savings accounts and the short-term maturity keeps potential fluctuation in net asset value at a minimum.
Tier three: Since it’s unlikely that you’ll need all of this money quickly, you can utilize buffered ETF investments that allow for potentially higher returns tied to a market index (e.g., S&P 500
or Nasdaq Composite
) yet offer some downside risk protection.
In addition to their disciplined saving and investing, my millionaire clients have one final thing in common: they grow and maintain their wealth by participating in comprehensive financial planning analysis on a regular basis.
Faron Daugs, CFP, is founder and chief executive of Harrison Wallace Financial Group.