Author: Heather Vale
December 07, 2023
Wealth degrades over time without interest, so it’s important for high earners to carefully invest or save money in high-interest accounts to offset that degradation.
People who don’t have a lot of money often think their problems would all be solved by getting more. But in fact, more money often comes with more financial challenges, and therefore more stress. High earners face plenty of unique economic dilemmas, including losing their money if they don’t manage it strategically.
It’s not enough to just throw your money in a savings account and forget about it. It might sound counter-intuitive, but you need to take some level of risk in order to maintain and grow your wealth.
Older adults have spent more time accumulating wealth and the lifestyle that goes with it. So they’re the most susceptible to having their net worth deteriorate, and dealing with the resulting negative impact. If you, a parent or grandparent are in that situation, don’t ignore it. Many of these upcoming strategies may require help from family and beneficiaries.
Because of inflation, money loses value over time. While you could buy a brand-new car for around $1,500 in 1950, and gas cost less than 30 cents a gallon, you wouldn’t get very far by budgeting those amounts today. Then again, the average family only made about $3,000 a year. So relatively speaking, both prices and income have increased many times since then but normally stay in line with each other.
However, let’s say you had put $1,000 in a safe back then, planning to take it out when you retired. Well, it might have been a fortune when it went in. But not so much on its way out.
Now, imagine that instead of just locking it away for safekeeping, you put it in a savings account earning 5% interest. After 50 years of compounding, your $1,000 would be worth over $12,000. So if you’re making good money and don’t want to effectively lose it, you need to put it somewhere that earns interest.
Making money is not the same as managing money, and it’s possible to be good at the former and bad at the latter. This isn’t something that’s traditionally been taught in school, so many people don’t know what to do with their money after earning it.
Everybody should learn financial literacy. But high earners face different monetary challenges than people in other income brackets.
High earners have several unique financial challenges in the short term.
Taking care of short-term challenges is just the start. High earners face even more financial concerns in the long term.
When you invest your money, you’re buying an asset and hoping it increases in value. Of course, some investments will lose money instead of making it, because their value goes down instead of up. Analyzing the markets can help you make educated guesses about the direction an asset will take, but it’s not foolproof.
Typically the riskier the asset, the more you stand to lose … or gain. So a lot of people choose to diversify their portfolios by investing in a variety of different assets with different risk levels. This type of strategy can maximize your return on investment (ROI) across the board.
Savings and deposits are usually less risky than investments — and also often provide a lower return. Many are FDIC insured, so you’re pretty much guaranteed not to lose your funds (up to $250,000 per person, per account type, per bank).
Getting the best of both worlds requires having investments combined with savings that earn interest. So stashing your cash under your mattress isn’t part of this plan.
High earners often make mistakes when attempting to preserve their wealth. Sometimes it’s because they’re not used to having money and don’t know what to do with it. Sometimes it’s just missing the mark while trying to be strategic, or not being fully educated on a method they’re trying to use.
Here are some common mistakes to avoid:
The death of a loved one can impact you financially, and your death will affect your heirs. So while it’s not pleasant to think about, inheritance management and estate planning are important aspects of wealth preservation.
When you come into extra money from an inheritance, it’s natural to be unsure of how to deal with it. It’s also normal to have your decision-making ability clouded by emotions.
Here are some strategies you could follow:
On the flip side, part of managing your own wealth includes making sure it’s properly distributed after your death.
Here are some estate-planning strategies to consider:
Following the tips and strategies included here will allow you to preserve your wealth, and even grow it over time. And remember that you don’t have to go it alone. There are plenty of financial professionals who can help you with almost any aspect of your earning, saving and investment journey.
About the author:Heather Vale
For over a quarter of a century, Heather has been working as a journalist in all media: TV, radio, print, and online. After establishing her career in Toronto, she has been living, working, and playing in Las Vegas for the past decade. She loves pulling apart complicated topics to make them simple, fun, and easy to understand, especially in the business and financial niches. But she also enjoys writing about the personal side of life, including success, relationships, families, and pets. She approaches everything from a yin-yang perspective, so her passion for wordplay and entertaining metaphors is always balanced with an intense (and some would say annoying) focus on facts and accuracy.
This material is for informational purposes only and is not intended to replace the advice of a qualified tax advisor, attorney or financial advisor. Readers should consult with their own tax advisor, attorney or financial advisor with regard to their personal situations.
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