Six Wealth Management Strategies to Secure Your Financial Future
Delwin Graham & Eric Brown - Nov 12, 2020
Unfortunately, there are a handful of factors that threaten the stability of your financial health. Inflation, for instance, essentially devalues your money if you aren't actively using it to generate more income.
Unfortunately, there are a handful of factors that threaten the stability of your financial health. Inflation, for instance, essentially devalues your money if you aren't actively using it to generate more income. But there are ways around these complications.
With proper wealth management, you'll find that you have no trouble increasing your overall net worth as time goes on. Not sure where to start? Don't worry, we have the answers you're looking for.
Let's dive into everything you need to keep in mind.
1. Invest Your Business Capital
One of the most common mistakes that business owners make with their financial planning is keeping all of their business capital contained within their business. While this is necessary in order to keep your business running optimally, there are often scenarios where entrepreneurs have access to excess capital that they aren't sure how to allocate. Although keeping excess capital in your business is a relatively safe option, it does prevent you from making your money work for you to the fullest extent.
Another important factor to keep in mind is that all of the capital you keep in your business has the same inherent level of risk. So, it's often worth taking the excess and investing it into something that has a lower level of risk (even if it provides a lower overall return).
2. Use Tax Breaks to Your Advantage
It's no secret that there are many complicated nuances associated with becoming an entrepreneur. Fortunately, though, many of these are offset by the tax-break opportunities that business owners have access to. But you won't receive the fullest benefits from these unless you actively strive to do so.
For example, taking advantage of Individual Pension Plans (IPP) can go a long way in saving you as much money as possible. These opportunities also inherently allow your money to grow in value as time goes on.
If you're unfamiliar with the tax opportunities that you're able to take advantage of, it's best to get in touch with a professional who can help guide you down the appropriate path.
3. Manage Your Own Finances as You Would Your Company's
Although this often won't directly impact the overall performance of your business, many problems can arise if you don't have a solid foundation for your personal finances. So, it's in your best interest to handle your own money exactly how you would handle your company's finances.
This means avoiding superfluous expenses, optimizing the amount of utility you get per dollar, etc. This will allow you to establish a sufficient amount of stability in your personal life that can help you make better decisions as an entrepreneur.
4. Plan for Contingencies
Unfortunately, it's not always possible to predict large-scale financial disasters. For example, the housing market crash of 2008 caught millions of people off guard and resulted in significant financial hardship. Fortunately, it's possible to mitigate the effects of contingencies by preparing for them during the present times.
This doesn't mean preparing only for poor economic performance, though. It's not impossible for a major change in your industry to occur within a short period of time and drastically impact your company's level of success.
Incorporating the proper level of financial planning will leave you with a significant safety net to fall back on in case complications arise in the future. This means ensuring that you have enough money to cover business expenses while also having a stable foundation of personal finances.
This means ensuring that you have enough money to cover business expenses for an extended period of time while also having a stable foundation of personal finances. Although the amount of money recommended will vary depending on who you ask, a general rule of thumb is that you should aim for 12 months’ worth of expenses (both business and personal).
5. Utilize Liquidity
In addition to providing entrepreneurs with significant spending power, keeping a notable amount of your finances in liquid reserves will also help protect you against any pitfalls that you encounter. This is especially useful during the early stages of your company where it's in your best interest to scale as quickly as possible without compromising overall stability.
As previously mentioned, it's recommended to keep approximately 12 months' worth of business expenses in this format at all times in order to stay prepared. Otherwise, you may not have the financial capability to withstand extended hardship or unexpected financial obligations.
Common liquid assets that entrepreneurs utilize often include stocks, accounts receivable, inventory, and cash.
6. Don't Be Afraid to Outsource
It's not realistic to expect every entrepreneur to be masters of managing their own finances. Otherwise, far fewer businesses would fail during their first few years.
If you find yourself needing guidance when it comes to making the right wealth management decisions, hiring a professional to work with you is easily worth the cost. Many entrepreneurs tend to think of the service as an investment in their business since it will facilitate the long‑term growth of their wealth. It will also allow them to have access to greater opportunities in the future.
Although you can learn this practice on your own, the time you spend teaching yourself is far better allocated toward performing your role and maximizing your company's performance.
Proper Wealth Management Is Essential for the Future
And it's something that should never be neglected. With the above information about the importance of wealth management in mind, you'll be well on your way toward making the decisions that are best for you.
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