Achievement unlocked: Strategic moves to leveling up in wealth management

Before most people begin thinking about wealth management, they’re focusing on more immediate concerns like careers, housing, and debt from college or graduate school. Yet building, protecting, and transferring wealth is a process with distinct stages. Each stage presents its own challenges and opportunities, and the first — building — is no exception. But where do you start?

First, map out your income and financial obligations, ensuring that you’ve covered the necessities — housing, food, transportation. Once this is done, it’s time to consider more complex questions. Here are a few I’m frequently asked.

How much income should I allocate to necessities vs. discretionary spending?

It’s helpful to think of your income and spending in terms of the 50/30/20 rule:

• 50 percent on essentials (housing, food, childcare) — with the caveat that rent or mortgage payments should be under 30 percent of your take-home salary.
• 30 percent on lifestyle — entertainment, restaurants, shopping.
• 20 percent on future — emergency funds, debt repayment, and investments.

What should I do with extra cash?

After obligations and fixed expenses are met, order your savings and spending priorities to best allocate the 20 percent of your income dedicated to the future or windfalls such as year-end bonuses:

• Ensure you have sufficient emergency funds, meaning dual-income households need enough to cover three months of expenses, and single incomes require six months.
• If your company has a 401k plan, contribute at least as much as the company will match to avoid leaving money on the table.
• Pay down debts, starting with the highest interest accounts.
• If your career is just starting and you expect to be in a higher tax bracket in later years, investments like Roth IRAs can be beneficial.

What should I do about insurance?

Start with the most cost-effective option, which is usually employer-offered group coverage. It’s affordable, and there’s no medical exam, so take the maximum available. If you require additional coverage, get quotes on term policies that cover the necessary time frame.

How much should I be saving for education?

I recommend meeting your retirement needs first — you can finance an education, but you can’t finance retirement. Then, for those seeking education funds, tax-free plans are available. However, avoid overfunding an education savings plan; you could pay a penalty on funds that aren’t used for that purpose.

When contributing to my company retirement plan, where should I invest?

First evaluate the level of risk you’re comfortable with and the target date you want the funds available. Then select a plan that fits your needs. The best options are often “lifestyle” funds, which automatically rebalance over time.

Do I need an estate plan?

Many at this stage don’t require a full estate plan; however, there are essential elements that should be addressed. For example, ensure accounts have up-to-date beneficiary/survivorship instructions, and if you have children, ensure a guardianship plan is in place.It’s never too early to plan for wealth.