Top 3 Things Smart Financial Professionals Do with Their Money

November 27, 2018

Over the course of the last few years, I have spoken with hundreds of financial professionals ranging from private equity professionals to investment bankers to asset managers. These conversations uncovered both the trials and the tribulations of their personal wealth management. Although plenty of individuals confessed their missteps, the tribulations they shared contained a few common threads. Below are three of the top actions that these financial professionals have accredited their personal wealth success to:

Avoid the Joneses

In a world surrounded by big pay days and status symbols, it is normal to feel as though you need to keep up with the Joneses. That new sports car can be quite intriguing after a big bonus or payout. However, it is important to live within your own means and sacrifice the spoils of today to meet future goals. These goals vary, but include retiring early, purchasing a vacation home, or funding a child’s undergraduate or graduate tuition. By avoiding the Joneses, it converts spending dollars directly into savings dollars. For example, not spending the additional $20,000 to upgrade to the next car status and investing those savings at a 6% return rate can more than triple going into retirement.

It is important to enjoy the fruits of your labor but avoiding the Joneses can allow you to labor less in the future.

Take Advantage of Qualified Savings

Financial professionals differ from other careers in their ability to accumulate much of their savings in taxable accounts. Many other professions save mostly in qualified accounts (401k’s, IRA’s and Roth IRA’s). The big bonuses and carry checks eventually make their way into a brokerage account, however one should not overlook savings in these other vehicles. These accounts play an important role in managing taxes not only during one’s career, but also during retirement. Diversifying the savings vehicles allow you to manage taxes with a scalpel, rather than a hammer later in life. The contribution limits may be small in comparison to the overall compensation you may receive, but establishing them early in one’s career can allow the power of compounding to make a difference.

Ensure you are maximizing your savings into each of these qualified accounts to further enhance wealth generation.

Construct an Overarching Strategy

Just like a company has a strategy in place for the short, medium, and long-term, ‘Your Family’ Capital must also have the same strategic plan. It is important to set long-term goals and determine the steps that are needed to achieve those goals. Having the goals laid out is an important first step but understanding and deciding upon each part of your financial plan is the important implementation step. Just like any company needs all departments working in unison, a personal wealth plan needs to coordinate your estate, retirement, and insurance plan.

Set up a strategic plan and ensure that all parts of ‘Your Family’ Capital are coordinated to meet your goals.

When you operate as the CEO of ‘Your Family’ Capital, it is important to keep these three lessons in mind. The CEO’s job at any firm is to set the vision and ensure that the company is operating to achieve the long-term strategic goals. By not keeping up with the Joneses, taking advantage of all savings vehicles, and constructing an overarching strategy you will create a great outcome for all the stakeholders.

Matt Kocanda, is a Wealth Manager at BDF and a member of the Investment Committee. The investment committee develops BDF’s overall investment strategy. Matt focuses on advising Financial Service Professionals through their complex needs – including cash flow, tax, or estate planning. Matt received an undergraduate degree in Finance from Indiana University.