Financial Literacy—Smart Money Decisions

Understanding three key concerns and three time horizons for your peak earning years.

Key Takeaways

  • Whether you’re a child; young adult; or 50-something with a spouse, home and kids, you never want to forget the power of saving first and spending second.
  • In your prime earning years, the three main concerns are wealth preservation, tax mitigation and portfolio growth.
  • By saving first and spending second, you can focus simultaneously on your short-, intermediate- and long-term financial goals.

In this, the third installment of our financial literacy series, we’re focusing on folks who are ages 25 to 65—those in the most productive years of their lives. Affluent folks in their late 50s are typically married with children. They’ve paid off their home and may have a second home. They often have a great deal of investable assets that they’ve systematically built up over the past 30 to 35 years. In fact, there are over 3.6 million Americans with over $1 million in investable assets.

How did they get there? Let’s go back to the first two phases of our financial literacy series. In Part 1 we discussed how children can learn about donating, investing, spending and saving through that little Savvy pig. In Part 2 we talked about getting young adults launched on the right financial path right out of high school or college. They may start out poor, but those who save first and spend second end up down the line in that affluent 50s demographic I just spoke about. The key is staying focused on three primary concerns:

  1. Preservation of wealth—i.e., keeping what you’ve got.
  2. Mitigating taxes— which can eat up between 25 and 50 percent of the earnings on your investments over time.
  3. Early growth—building up a portfolio over a long period of time to come up with the wealth necessary to retire comfortably.

So where do we begin? Let’s start with three buckets for investments: Short-, intermediate- and long-term buckets.

Three time-horizon buckets

1. Short term. We need to build up the short-term bucket first with at least six months’ worth of expenses in cash on hand. The funds could be in money market, checking or other liquid accounts.

2. Long term. Simultaneously, you want to build up savings that also mitigate taxes. Take advantage of your company’s 401(k) plan right away and the matching program if they have one. It’s free money. For example, $100,000 earning 7 percent a year grows to $1 million after 35 years in a tax-deferred program. But it’s only worth $400,000 if invested in taxable investments, since that 7 percent is really only earning you 4 percent a year.

As you go through life, you buy a home (rather than renting); you get married, you have children and expenses start to build. But you want to keep on saving first and spending second. You want to keep mitigating taxes and building out the long-term bucket while keeping those short-term emergency funds on hand.

3. Intermediate term. This is typically where you see people build out two to seven years’ worth of expenses. So when they do get to their late 50s and they’re thinking of retiring, they have a great structure in place that allows them to do anything they want in life. This third phase can seem complex, but it’s based on the same three principles of wealth preservation, tax mitigation and portfolio growth.


Also remember that April is National Financial Literacy Month. Leading up to that we have a great seminar in March called Taking Charge of Your Wealth. We’d love to see you there—and feel free to bring a guest.

So, until next time, enjoy. Gary
800-480-7913 |


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