I have been a big fan of these 7 steps to build wealth since I have been a Certified Financial Planner for over 26 years and have used them successfully with clients. You won’t find any get rich quick to make up your losses fast schemes here. You will find common sense, everyday action items that you can take to make a wealth building strategy for yourself and your family. Remember, it isn’t how much you earn but how much you keep. These steps will start with strong foundations which are steps 1 though step 3. Ignore these and you risk messing up the rest of your efforts. Like building a house, you need a strong financial foundation that will lay the groundwork for attracting and building wealth over a lifetime. Here are the 7 steps:

1. Get an estate plan. Okay you may be single with no family and you say you don’t need an estate plan. Not true. Make a holographic will and just give everything to your favorite charity. Do you have kids and an extended family? This is all the more reason to have a good estate plan. The basics would be a will, power of attorney for health care (or medical directive), and a power of attorney for financial care. Have a large estate? Then you can add things like a revocable living trust, charitable trusts, etc.

Don’t get an estate plan and then don’t be surprised when the ex-wife inherits everything because your spouse didn’t change the beneficiary designations or the will. I have seen it happen too many times.

2. Manage Your Cash Flow. I don’t care if it is just a checkbook. You need to know how much is coming in and how much is going out before you can save or even think about investing. Pretending you know or just ball parking numbers doesn’t work. You can add and subtract -so figure it out. Why? Because you can’t save, invest for your future, or try to reduce your taxes if you don’t know where your money is going. With all the great tools out there such as Mint, and Quicken, there is no excuse not to be tracking your cash flow.

3. Risk Management. This means that as you grow your net worth, you also manage the risks that can destroy it along the way.  That means health, life, auto, home insurance and so on. Think you can’t afford it? Think again. What would happen if you got cancer and didn’t have health insurance?  It wouldn’t be pretty when all that you have worked hard for is wiped out because you didn’t want to pay health insurance premiums.

Of course, we all can’t afford to insure against everything so you pick and choose your battles. This means managing your risks with a combination of self insuring (no insurance and high risk), or partial insuring (small amount of insurance and high deductible), or being fully insured (100% coverage by insurance). Pick a plan that is suited to you, what risk you are willing to take and what you can afford.

Now that you have the top 3 covered, it’s time for the fun stuff.

4. Financial Goals. That’s right you need a goal. Without one you are shooting in the dark and that is scary in these economic times. Remember that these goals are just a starting point. They aren’t set in stone. It could be to retire at 50 or to fund the kids’ college education or to make that trip around the world. Whatever it is, make sure it is SMART- specific, measurable, attainable, realistic, and timely. Setting up goals like to quit work at 55 when you are 40 and only have $100,000 saved would not make the cut.

5. Invest. For those who want to invest but aren’t willing to budget, I say take the first 20% of all of your income and invest it before it hits your checking account. That is an easy and painless way to pay yourself  first which is the first tenet of building wealth. After you make this leap, you won’t even notice that money. Meanwhile it wasn’t spent on stuff, it was spent on you- and that’s a good investment. Investing isn’t about trading in and out of mutual funds or real estate. It is about sticking with an investment over a full market cycle of ups and downs. If you panic easy when the markets goes down, then fine, just stuff your money into cash and cash equivalents, like treasury bills and bonds and such. But it will take you a lot longer to meet your goals than a good mix of cash, bonds, and equities (stocks, mutual funds, etc.)

6. Retirement. So you are never going to retire? Don’t bet on it. Even if you wanted to, your mind and body will one day say no more.  When that time comes, what will replace your paycheck? It isn’t going to fall from the sky. You have to have a bankroll to replace a minimum of 25% of your salary to survive. Remember, social security wasn’t meant to be your sole source of retirement income. It was meant to be supplemental to your own savings account. Don’t say that time will never come, because it does and you better be ready or it won’t be pretty. Have you known someone whose sole source of income is a social security check?  Enough said.

7. Tax Plan. Tax planning is all about keeping more of what you earn. It is an easy way to keep your cash flow up. It means taking all the legal deductions that are due you. But you can’t do that if you keep sloppy records or refuse to manage your cash flow as in number one. It pays big time to keep good records not just in getting a bigger tax refund or more monthly cash but in having more to invest for your future. Tax preparation is not an easy task for anyone even if you own the software. I have had people pay me my full fee just to review their entries into the tax preparation software. That’s not a wise use of your money.  Get a good tax preparer and keep good records.

Make these 7 steps to build wealth your new year’s resolution.  Check in with a fee-only Financial Advisor or a Wealth Coach to review what you have done.  Then you will have a wealth building strategy that you can refer to every year.

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Have you fixed all your Nagging, Unfinished, Tasks, (NUTS) that keep you from building wealth?

Most people don’t move until the last minute to finish their NUTS especially when they come to see me, a Wealth Coach. Time and money are the biggest obstacles that keep people from getting their finances in order. But not addressing your NUTS can drive you into the poor house.

Take for example, Mr A & Mrs. B, they couldn’t agree on what to do with their money and so did nothing . Mrs. B is worried that that they won’t have enough for retirement and Mr. A might lose his job and both worry about the rising costs of college tuition. They worried about their assets declining in value and talked about it and still did nothing. . Both have no idea of how much they spend annually and both haven’t had decent raises in years . They came to me wanting to fix their Nagging, Unfinished, Tasks. It took hourly phone calls every other week for nearly a year at a cost of $6,500 to take eliminate their financial N.U.T.s.. What happened over that time?

I started with a financial foundation-I got them an emergency savings account, updated estate plan, and a detailed review of all of their insurance. I taught them how to continually get the ideal rates on their cash and even with the cost of an estate planning attorney, they saved over $1500 .

I got them to blend their accounts together and specify them for goals; IRAs,  Roth IRAs, pensions, 529 college plans, 401ks,  brokerage statement, etc. I helped them prioritize their goals and agree on what they wanted to do with their money as far as inheritances. Aligning money with values and goals is just as important as investing. They now know how to manage their own portfolio as a unit for the purposes they intended. They also agreed on what they strategy they would use when things go south.

Mr. A understood that he couldn’t contribute to retirement and college education if he was out of a job for a long time and Mrs. B understood that she would need to cut back on expenses if she still wanted the family to take vacations every year. Both knew what each had to do to meet their goals.

How much did they save? Hard to say,  but at least $15,000, and the peace of mind- priceless.  But both are extremely pleased that they have a plan and they know how to implement it on their own . Waiting so long to fix their Nagging Unfinished Tasks is their only regret .

If this couple went to a financial advisor, they would have easily paid $10,000 or more and had ongoing fees and expenses and still worried about if they were doing the right thing. Now they are armed with the education, tools, and resources to stay on track. They took the time and actually saved money,saved on taxes, and decreased their stress. Can you place a price on that?

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