Wouldn’t it be the best of two worlds… to be both young and rich? The sweet news is, the average age of the wealthiest Americans is getting younger. According to a Bloomberg report, the fabulously rich in America are increasing, some from generational wealth, and others from hard work. So what can you learn from them, especially if you want to know how to retire early, succeed at the money management business and join the ranks of the uber wealthy?
First, let’s take a closer look at the newly young and rich and how they got here. Spectrem surveyed investors under 38 and found 90% reached this financial success from “inheritance” and “family connections.” But the same number also credited “hard work” and claim they are still working.
So the good news is, business smarts can have you joining the ranks of the elite. For example, at the age of 35, Facebook co-founder Mark Zuckerberg is well known as a college drop out with a fortune of over 70 billion. Evan Spiegel, the founder of Snapchat, is worth over 2 billion at the age of 29.
In fact, about “172,000 U.S. households have net worths of at least $25 million”, up from 84,000 a decade ago, according to estimates from Spectrem, an investor’s research group. So how can you learn from this rising trend?
I became a self-made millionaire at 27, and what I noticed is how successful people plan financially affects their long-term success.
I’ve taken some of the best strategies from these millionaires and billionaires and applied it to my own financial planning. So let’s say you have a self made fortune. To manage your money well, there are four stages that you go through, and you will need a financial plan for each of them.
Learning these stages is part of what I call the “money management business” and is a strategy for you to become rich at a young age.
Watch this video about the four stages of financial planning.
1. Financial Plan for Survival
At the survival stage you have no financial plan so you spend whatever you earn. If you’re lucky, you’re not in debt but most likely you are. You simply focus on making enough money so that your income exceeds your expenses, instead of your expenses exceeding your income.
Believe it or not, this is most of the population. Most people spend more than they earn every single month and that’s how they’ve racked up their credit card debts. In the United States the average American now has about $38,000 in personal debt, not including mortgages.
Earn more than you spend if you want to plan for survival. At one point, I was broke and struggling at stage one, but if you’re here now, it doesn’t mean you will stay here.
2. Financial Plan for Security
To reach the security stage, you’re putting away three to six months of cash for a rainy day emergency. Each month, you are saving and investing by putting some money aside. Not only are you now earning more than what you’re spending but now you’re actually saving some money. That’s a financial plan for security.
What’s surprising is 10 percent of Americans have less than $5000 saved for the future. And 21 percent have nothing put away… at all. So start saving.
3. Financial Plan for Success
At this stage, you are thinking like an entrepreneur. You’re setting yourself up for comfort and abundance.
Here’s an example. Maybe you have one or even multiple insurance policies. You’re a passive investor, putting money aside for a retirement account or stock portfolio or mutual fund portfolio.
I’m not an advocate of that but for you and many others, some plan is better than no plan. And by putting some money aside, hopefully you’re setting yourself up for a comfortable retirement.
In my case, at the beginning of my career I had nothing. Then I made a little bit of money that I put aside. I went through the stage of financial planning for security. When I accumulated enough money, I put some into conservative investments.
The game changes when you have more money coming in and you become an accredited investor, dealing in securities, you’re a more sophisticated investor and the investment world opens up to you. You have access to investments that most people don’t have access to.
One reason the super rich are multiplying faster than ever before is because of technology and venture capital. A billionaire can rise overnight because of funding, unlike before, when it was more common to build up a business empire over several decades.
And once you’ve reached stage three, you’re starting to put together a team to manage your money and plan for the future of other people, not just yourself.
4. Financial Plan for Significance
You start putting together a team as you evolve into the fourth stage, which is financial planning for significance. That’s when you have so much money that you’re thinking about allocating some to charity and passing some onto the next generation to leave a legacy.
For instance, Mark Zuckerberg and wife Priscilla Chan gave 99 percent of their Facebook shares to charity after their daughter was born. They also planned to invest at least $3 billion in scientific research on children’s diseases for the Chan Zuckerberg Initiative (CZI).
It also gets more complex at this stage when you’re earning six figures and more. You may have an accountant and a financial planner as part of your financial team.
As the CEO of your money management business, you have to know how your money works and how to allocate your money resources and capital. In my case, I meet with several people to come to some financial decisions about my investments. I might meet with my accountant, my bookkeeper, tax strategist, or real estate broker.
That’s a very different level of financial planning than looking at your bank statements and figuring out what you what to do. Maybe you’re currently just at survival stage making more money to develop your high-income skills. Then you’re going to make some money so you can invest. Then you move on to stage three. You have some kind of financial plan to retire comfortably.
The good news is, more and more millionaires and billionaires are being minted every day. As technology changes and the way we do business changes, more and more possibilities open up. So start early and have a financial plan.
Being an expert at the money management business is one way to retire rich. And retire young.
Which financial planning stage do you want to be at? Comment below.