The 7 Steps to Build Wealth in 2012

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.



  1. Kamil on February 3, 2012 at 3:31 AM

    I agree with your advice and am trying to rebuild my “wealth” since my retirement(55) in 2006. I must admit that I have not been consistent,disciplined,focused and financially educated during my working life. I have not responded effectively with my financial goals when new career/lifes’ milestones occurred! Key ones are, firstly, when my late wife decided to resign from her bank managers job we had to live on a single paycheck paying off a mortgage,car loan and feeding 3 kids. Secondly, my eldest daughter,at this time was based in Vancouver for national(Malaysia) synchronised swimming training ,and we decided that she might as well continue with her education there. This was not part of the original education plan for the kids and it took a huge chunk of my retirement savings! Thirdly, my wife was diagnosed with cervical cancer in 2002 and passed away in 2005,prior to my retirement. Needless to say, my mental focus during those years was to be a caregiver to my wife and to care for the kids whilst working. It was a traumatic period during which wealth management took a backseat, and I only realized my financial predicament in 2007. So, based on my retirement needs/lifestyle, I have enough to survive for the next 10 years, and am constantly reviewing my options!

  2. Fern Alix LaRocca on February 3, 2012 at 3:59 AM

    Thank you so much for sharing your “wealth” journey. I, too, have had many setbacks (over 28 surgeries). But I applaud your mindfulness in knowing when wealth management takes a back seat to family affairs and when to review your options. If there is any way I can help you, let me know.

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