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Warren Buffett once said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
by Greg Morgan | Contributor
As children, many of us were advised to “save some of your money,” “put money aside for college,” or “set aside funds for the future.” However, as a wealth advisor with over 30 years of financial planning and investment experience, I can tell you that the actual strategies for growing your assets are seldom included in those lessons. With a multitude of investment options available, it’s crucial to find a method that works best for you.
Long-term investments typically aren’t the starting point of your financial journey; they generally come later. I suggest adopting a broad strategy when considering where to allocate your funds after settling your monthly bills.
#1: Prioritize Your Savings
I urge all my clients to make the most of their 401(k) contributions at work. These plans are protected from creditors, and many offer employer matches for contributions. If you haven’t been utilizing your employer’s plan, and you’re over 50, there’s a “catch-up” provision that allows for an additional annual contribution of $6,000. Paying yourself first is essential each time your financial situation shifts. With any bonuses, I suggest saving at least one-third and enjoying the remainder. Similarly, if you receive a promotion, set aside a portion of your increased income. This proactive saving can significantly contribute to your future without impacting your current lifestyle.
#2: Start Saving for Your Kids
The sooner you begin saving for college, the lighter the financial burden will be later on. While college costs can be daunting, establishing a 529 plan or a Uniform Transfers to Minors account (which lets you hold securities for a minor’s benefit) and consistently contributing can significantly mitigate costs when your children are ready to pursue higher education.
#3: Address Your Debts
Once you’ve established a four- to six-month emergency fund to handle unexpected expenses, it’s time to tackle your debts, focusing on more than just the minimum payments. You might question whether it’s wise to withdraw funds from savings to pay off creditors. It’s vital to evaluate the interest you’re being charged against the returns you’re earning in your savings. Typically, paying off debt more swiftly is advantageous in the long run.
NOW you’re prepared to explore long-term investments
As Albert Einstein stated, “Compound interest is the eighth wonder of the world. He who understands it earns it… he who doesn’t… pays it.”
Investments generally fall into three categories: cash or money market accounts, bonds, and equities (stocks and mutual funds). I encourage clients to fully understand their investments and why they own them. Consulting with a professional can often offer valuable insights into evaluating your portfolio.
The economy is currently shifting rapidly. Since the 1980s, we have witnessed an unprecedented decline in interest rates, but the Federal Reserve is now raising rates to moderate economic growth. This change means that investments traditionally viewed as safe, like bonds, may not perform as well moving forward. As market conditions evolve, reconsidering your 401(k) allocation may be prudent. It’s essential to have a clear understanding of your investments. Ask yourself, “Is this the best way for my money to grow?”
It often feels like money is as limited as closet space; there never seems to be enough. However, if you plan ahead, you can enjoy watching your savings flourish while reaping the rewards of your diligent efforts.
Greg Morgan has extensive experience in financial planning and investment at SFMG Wealth Advisors. He has been recognized by “Bloomberg’s Top Wealth Managers” and named one of the “Top Wealth Managers” by Wealth Manager Magazine. Greg assists a diverse clientele, including business owners, executives, and medical and legal professionals, from SFMG’s Plano office. You can reach Greg at greg@sfmg.com or 972.960.6460.
