Converting High Income Into Lasting Wealth

Courtney Jones, CFP®
Posted on 
October 21, 2021

Converting High Income into Lasting Wealth

It’s become a cliché that Millennials struggle to get ahead and create wealth, despite six-figure salaries, and dual incomes, because of their spending and lifestyle habits. However, the data tells a different and more nuanced story.

Wealth in 2016 of the median family headed by someone born in the 1980s was 34 percent below the level experienced by earlier generations at the same age according to A Lost Generation? 2018 Study.  Fortunately, over the last three years, positive conditions have narrowed that gap to 11% as published in Millennials are catching up 2021 Study. There are various reasons for this rebound. About half of millennials are invested in stocks, so the recent surges in the stock market helped. Even more important, more than half of millennials now own homes, and home prices surged in the last few years. Lastly, many millennials made progress in paying off their student loans.

But this snapshot of the typical millennial shows still a big gap. Fortunately, there are some positive trends that can help narrow the gap overtime, and the prospect of a strong economy as well as an evolving investment management landscape may help this generation leap ahead.

Tracking Spending

Making and keeping a budget is the core of creating wealth. Technology has not only simplified budgeting, but it has also helped to bring some of the principles of behavioral finance (why you do what you do with money) into the game. Budgeting software has developed to the point that it can pinpoint on where and what an individual struggles with and provide tools to help fix the problems and get budgeting on track.

There are free apps, like Mint, that provide a comprehensive look at organizing your finances. If you want to get a little deeper, apps like You Need A Budget (YNAB) can change your view of how you spend. The process works under the principle of assigning every dollar a job, and one of the goals is to help you get out of debt. If overspending is a problem, there are apps for that too. With a little online research, you’ll be able to find some budget tech that is the best suited for your situation.

Minimizing the Big Expenses

For most people, by the far the biggest monthly expense is housing, whether you own or rent. This was also the most constrained – living in expensive communities to be close to knowledge-worker jobs was just the reality. It’s different now. The pandemic has normalized working-from-home to the point where it’s likely to remain long after the COVID has receded.

Finding a new home no longer requires multiple expensive trips to check out new communities and houses. Now it can all be done online. Moving can lower costs in three ways. It can result in lower state and local taxes; less-expensive housing stock can mean paying less for monthly housing costs; and many communities can offer an amenity set that includes great public (or private) schools and other benefits that can lower lifestyle costs.  Besides, selling a primary residence may mean you are entitled to a tax exemption.

You may also choose to hold onto your existing home and rent it out, essentially converting it into an investment property. While it can get complicated, when you do sell you may be eligible for a 1031 exchange in which you essentially roll over the profit on your existing real estate into another asset of equal value. This can be a way to build a real estate portfolio that provides you with another source of income.

Making Savvy Financial Decisions

Financial literacy is essential for Millennials, as they face financial decisions that can have important consequences throughout their life. The financial choices that younger generations face are far more challenging than those faced by past generations. To the millennials credit, they have started saving earlier for financial goals like retirement: a quarter of millennials who save, have $100K or more in savings, three-quarters of them are saving for retirement and more than half are building emergency funds Better Money Habits R Millennial Report Winter 2020. Besides prioritizing savings, they also research their options and closely monitor their financial accounts and tend to be more cognizant of fees.

Investing Is Now Investor-Centric

Today’s investors have more investment products available, some of which were previously only able to institutions and ultra-high net worth investors. Millennials prefer to make investments that do more than just grow their portfolio, they seek to invest in companies that have positive effects in the environmental, social and tech spheres. These can include businesses focused on gender diversity and racial equality, smart-energy companies and institutions that prioritize solar and clean energy.

On the other hand the shift towards a fiduciary model of investment management has represented a huge change in the industry. The fiduciary model requires the advisor to put the client’s best interests first. This has given rise to a trend of smaller, client-centric independent investment advisors who can tailor their service to what clients need and hope to achieve, not just to the bottom line of their assets.

The millennial generation has faced considerable challenges, but they continue to break new ground and redefine life and what’s important to them. They are comfortable with technology, but they are also aware that their financial challenges are more complex than those of previous generations. This makes them likely to rely on hybrid approaches that combine their robo-advisors with the real-world guidance of a financial advisor.

Converting High Income Into Lasting Wealth

Courtney Jones, CFP®
Posted on 
October 21, 2021
Converting High Income Into Lasting Wealth

Converting High Income into Lasting Wealth

It’s become a cliché that Millennials struggle to get ahead and create wealth, despite six-figure salaries, and dual incomes, because of their spending and lifestyle habits. However, the data tells a different and more nuanced story.

Wealth in 2016 of the median family headed by someone born in the 1980s was 34 percent below the level experienced by earlier generations at the same age according to A Lost Generation? 2018 Study.  Fortunately, over the last three years, positive conditions have narrowed that gap to 11% as published in Millennials are catching up 2021 Study. There are various reasons for this rebound. About half of millennials are invested in stocks, so the recent surges in the stock market helped. Even more important, more than half of millennials now own homes, and home prices surged in the last few years. Lastly, many millennials made progress in paying off their student loans.

But this snapshot of the typical millennial shows still a big gap. Fortunately, there are some positive trends that can help narrow the gap overtime, and the prospect of a strong economy as well as an evolving investment management landscape may help this generation leap ahead.

Tracking Spending

Making and keeping a budget is the core of creating wealth. Technology has not only simplified budgeting, but it has also helped to bring some of the principles of behavioral finance (why you do what you do with money) into the game. Budgeting software has developed to the point that it can pinpoint on where and what an individual struggles with and provide tools to help fix the problems and get budgeting on track.

There are free apps, like Mint, that provide a comprehensive look at organizing your finances. If you want to get a little deeper, apps like You Need A Budget (YNAB) can change your view of how you spend. The process works under the principle of assigning every dollar a job, and one of the goals is to help you get out of debt. If overspending is a problem, there are apps for that too. With a little online research, you’ll be able to find some budget tech that is the best suited for your situation.

Minimizing the Big Expenses

For most people, by the far the biggest monthly expense is housing, whether you own or rent. This was also the most constrained – living in expensive communities to be close to knowledge-worker jobs was just the reality. It’s different now. The pandemic has normalized working-from-home to the point where it’s likely to remain long after the COVID has receded.

Finding a new home no longer requires multiple expensive trips to check out new communities and houses. Now it can all be done online. Moving can lower costs in three ways. It can result in lower state and local taxes; less-expensive housing stock can mean paying less for monthly housing costs; and many communities can offer an amenity set that includes great public (or private) schools and other benefits that can lower lifestyle costs.  Besides, selling a primary residence may mean you are entitled to a tax exemption.

You may also choose to hold onto your existing home and rent it out, essentially converting it into an investment property. While it can get complicated, when you do sell you may be eligible for a 1031 exchange in which you essentially roll over the profit on your existing real estate into another asset of equal value. This can be a way to build a real estate portfolio that provides you with another source of income.

Making Savvy Financial Decisions

Financial literacy is essential for Millennials, as they face financial decisions that can have important consequences throughout their life. The financial choices that younger generations face are far more challenging than those faced by past generations. To the millennials credit, they have started saving earlier for financial goals like retirement: a quarter of millennials who save, have $100K or more in savings, three-quarters of them are saving for retirement and more than half are building emergency funds Better Money Habits R Millennial Report Winter 2020. Besides prioritizing savings, they also research their options and closely monitor their financial accounts and tend to be more cognizant of fees.

Investing Is Now Investor-Centric

Today’s investors have more investment products available, some of which were previously only able to institutions and ultra-high net worth investors. Millennials prefer to make investments that do more than just grow their portfolio, they seek to invest in companies that have positive effects in the environmental, social and tech spheres. These can include businesses focused on gender diversity and racial equality, smart-energy companies and institutions that prioritize solar and clean energy.

On the other hand the shift towards a fiduciary model of investment management has represented a huge change in the industry. The fiduciary model requires the advisor to put the client’s best interests first. This has given rise to a trend of smaller, client-centric independent investment advisors who can tailor their service to what clients need and hope to achieve, not just to the bottom line of their assets.

The millennial generation has faced considerable challenges, but they continue to break new ground and redefine life and what’s important to them. They are comfortable with technology, but they are also aware that their financial challenges are more complex than those of previous generations. This makes them likely to rely on hybrid approaches that combine their robo-advisors with the real-world guidance of a financial advisor.

Registered Representative of Sanctuary Securities Inc. and Investment Advisor Representative of Sanctuary Advisors, LLC. Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC.  Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. Credo Wealth Management is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC. This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. This communication has not been reviewed for completeness or accuracy, does not necessarily reflect the views of Sanctuary Securities, Inc. or Sanctuary Advisors, LLC., and is not a recommendation or endorsement of any product, service, or issuer. For additional information, please refer to one of the following consumer websites: www.FINRA.org, www.SIPC.org.

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