Sometimes, hard work pays off. You’ve weathered the storms and taken wise chances, and now (finally), you’re making good money.
If you’re wondering what to do now, you’re not alone – one study showed that the number of households with a net worth of $1 million grew from 2.4 million households in 1983 to 9.1 million households in 2016 – a growth rate of 279 percent.
You may or may not be at the millionaire threshold, but many who have reached a level of financial comfort figure complex philosophies should accompany their increased wealth. You may be relieved to find that some of the best advice is simple.
1. Be a (Parkinson’s) law breaker.
Parkinson’s law of money is that expenditures rise to meet income. As you earn more money, your needs increase and you end up spending more money. Therefore, in order to succeed financially, you need to break Parkinson’s law when it comes to money.
Many experts believe that you can finally replace the fifteen-year-old car you’ve been longing to change – but instead of considering the Alfa Romeo, consider how you’d break Parkinson’s law.
2. Strike a balance between living for today and planning for the future.
One challenge we’ve seen in folks who’ve hit a long-term goal is whether to continue holding to their ingrained, tested tenets of life, work and saving – or whether reaching a goal demands a new set of rules.
Extreme responses, like “stop investing entirely,” “no longer watch what you eat,” or “spend your savings,” all ring untrue – because they are. Instead, consider “allowances” and “rewards.”
For example, you may now allow yourself a pair of jeans with a hefty price tag or a trip to a place you’ve always wanted to visit – because you’ve researched, shopped, and are buying them at a value price.
And now, you may be able to reward yourself when you hit other future goals, like staying within your budget every month, or maxing out your IRA for the year.
Remember – there is a difference between paying yourself first and rewarding yourself first. Paying yourself first refers to the practice of funding your own savings and investment accounts first, before you do anything else. It’s a practice you don’t need to give up – in fact, some experts believe you can now expand your “pay yourself first” goals.
3. Defer income taxes in high-earning years – pay them in low-earning years (early in your career, or in retirement)
This idea helps to illuminate the difference between a financial plan and a comprehensive financial plan. Often, a financial plan will discuss where and how you’ll invest. A comprehensive financial plan looks at taxes, tax consequences, and how to sequence your taxes in light of your goals.
You’ll find there are plenty of tools available to allow you to defer the payment of taxes. Make sure you can work with an advisor you can trust to work through this critical part of your financial planning.
4. Where are you, really?
We’ve run into a number of people who discover that they thought their insurance picture was rosy, that their retirement savings were sufficient to continue their lifestyle, and that their portfolio was well-balanced. It may be time to consider a real inventory of what you own, what it’s all worth, the tax implications of your holdings, and even your estate plan – how it all will pass to your loved ones.
You may have been focused on a savings or income goal, but now is a good time to know and understand your entire financial picture.
In all, it’s a good moment to stop – take a breath, recalibrate, take a look ahead and in the mirror, and enjoy this moment of success. As you move forward, you’ll be grateful to have a better understanding of where you are, where you’ve going, even as you look with pride on where you’ve been.