Building Wealth That Lasts

by Albert Alan Aizinretiredcouplesunset

Growing up as a child, my brother, Adam, and I attended a French private school in Los Angeles called Le Lycee Francais. Our family was by no means affluent compared to some of the other families who attended the school. We were middle class at best. Our parents, Stanley and Inna, worked very hard as dentists in order to give us the opportunity for a bilingual education. For that, we are truly grateful.

It was 1981. I was 10 years old and in the process of discovering what I wanted to become as I grew up. It seemed the natural thing was to go into our family business of dentistry. However, there was something else that fascinated me at the time. What grabbed my curiosity was the differential in wealth which existed in our school. Some of my classmates lived in ordinary homes like ours, while others lived in homes which looked like small museums.

I decided my quest in life was to learn what these families did differently to accumulate their wealth. When I wasn’t playing with friends, I was reading and learning about influential and successful people and trying to piece together what they had in common. I was a sponge, doing my best to absorb their knowledge. Usually it came down to their drive. Successful people have IMMENSE drive. They do not give up. A challenge or failure in their eyes is simply one step closer to success. Those childhood years from age 10 to 16 were some of the most memorable moments of my life.

In 1999, I founded our Wealth Management firm, and for the past 15 years we have been helping our clients build lasting wealth. Today we help dentists, doctors, attorneys, other professionals and families build wealth thru Value Investing. I would like to share a few strategies which you may find beneficial to your financial success.

Your savings rate is key – The average American saves approximately 3 to 5% of their gross annual income. At that rate of savings, you can see it is a challenge to build measurable wealth. The key is to set concrete goals each year and measure your progress. If in 2014 you only managed to save 5% of your salary, for 2015 set a goal of 10%.

Let’s say you are having a record year. The company you own earned $500,000 gross for the year and you paid yourself a salary of $200,000. The previous year, your salary was $150,000. What many people incorrectly do is they increase their spending by the increase in their salary. The more powerful thing to do is to increase the amount you contribute into your retirement and non-retirement accounts.

The most important measurement of your success lies in your savings rate. Your annual savings percentage rate is one of the few things in life you have control over. If you can manage to save and invest between 10 to 25% of your gross annual income, you will have some wind in your sails. If you only manage to save and invest 3% to 5% of your gross annual pay you may find you are paddling upstream like a salmon. Let’s look at an example for clarification. Let’s compare individual A with individual B.

Individual A and B both earn $200,000 per year in salary.

Individual A invests $10,000 (5% of gross salary) into his retirement account this year and continues to do so for the next 25 years. After 26 years, individual A has managed to contribute a total of $260,000. At a 7% rate of return, his retirement account has grown to $619,628.

Individual B invests $50,000 (25% of gross salary) into his retirement account this year and continues to do so for the next 25 years. After 26 years, individual B has managed to contribute a total of $1,300,000. At a 7% rate of return, his retirement account has grown to $3,098,141.

Notice, their annual income is the same. What separates the two is simply their savings percentage rate.

Pay yourself first – In a nutshell, “pay yourself first” means automatically routing your specified savings contribution from each pay check at the time it is received. This simple system is promoted by many financial professionals and retirement planners as a very effective way of ensuring individuals continue to make their dedicated savings and retirement contributions month after month. Before you pay your bills, before you buy groceries, before you do anything else, set aside a portion of your income to save.

The first bill you pay each month is to yourself. This habit, if developed early, can help a person build wealth. This can remove the temptation to skip a given month’s contribution and spend the money on something else. Regular, consistent contributions go a long way toward building a long-term nest egg. Some financial professionals even go so far as to call “pay yourself first” the Golden Rule of personal finance.

Do not spend the family fortune – If you inherit $1 million, it is tempting to think of what it will buy. But give a million to an old-money family, and it goes into a business… an investment… or a new entrepreneurial venture. “Never touch the capital” or “Never kill the goose which lays the golden eggs” is a mantra among old-money families. You may spend the interest earned from the family fortune, but you should never touch the capital.

Wise money understands it is more important to produce than to consume. The principal needs to be kept intact. Any distributions should be of interest, after taxes and inflation adjustments. Families can be tempted to “dip into capital” to make ends meet. There’s a taboo against it for good reason. Once you begin living on a previous generation’s savings, you will find it hard to stop.

Spend only what you make yourself. The earnings from capital go back into the family fortune, replacing losses from inflation and taxes. And to help keep your Family Fortune going on for future generations, you may want to consult an Estate Planning Attorney about setting up a Family Trust. For example, the Trust can be set up in a way where only the earnings can be withdrawn upon inheritance.

Measure your success at saving money – It would be very helpful if there was some type of retirement yardstick to aim for. Fidelity Investments, back in 2012, came up with their version of “The Magical Number1.” According to Fidelity, typical wage earners at age 65 should have approximately eight times their final annual pay set aside for retirement.

Fidelity also offered benchmarks to measure one’s progress along the way. By age 35, your goal is to have an amount equal to your annual pay. By age 45, three times your annual pay is a good measuring stick. And by age 55, one should have five times their annual salary saved for retirement. Please keep in mind no two people are alike when it comes to analyzing what amount is best for them. Regardless, this study conducted by Fidelity allows us to compare where we are relative to where a good starting point should be for many Americans.

The earlier we start planning for our retirement, the quicker we can tell the universe where we want to be by a certain age. Putting your financial and retirement goals on paper and reviewing them annually is also recommended. Hiring a qualified Financial Advisor, to coach you along the way may also help you in reaching your goals. In “The Millionaire Next Door”, Thomas T. Stanley and William D. Danko reported that affluent individuals tend to follow a lifestyle conducive to accumulating money. The seven common denominators among those who build wealth successfully are:

• They live well below their means.
• They allocate their time, energy and money efficiently, in ways conducive to building wealth.
• They believe that financial independence is more important than displaying high social status.
• Their parents did not provide economic outpatient care.
• Their adult children are economically self-sufficient.
• They are proficient in targeting market opportunities.
• They chose the right occupation.

Today my passion is working with professionals all over the country and seeing what can be done to Fast-Track their wealth building success. I want to thank my wife Lilian and son Nicholas. We all need a Go For in life and my family is simply the best inspiration I can have.

We hope this collection of wealth building strategies has been helpful. For a complete copy of our report titled “10 Powerful Strategies to implement before retirement,” or if you would like to set up a complimentary wealth planning consultation, please call our Irvine office at 949-474-8440.

Albert Aizin is President and CEO of Advanced Planning Financial & Estate Services located at 18552 MacArthur Blvd., Suite 440 in Irvine. He can be reached by calling (949) 474-8440, email aaizin@theretirementgroup.com or visit www.AdvancedPlanningFinancial.com. CA Ins. Lic. #0C78429. 1Source: Wall Street Journal, Oct 5, 2012, Article titled “When eight isn’t enough”

Securities and advisory services are offered through FSC Securities Corporation, Member FINRA/SIPC and a Registered Investment Advisor. Investment advisory services offered through The Retirement Group, LLC, a Registered Investment Advisor not affiliated with FSC Securities Corporation. Advanced Planning Financial and Estate Services is not affiliated with FSC Securities Corporation or registered as a Broker-Dealer or Investment Advisor.

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