Is Your Lifestyle Temporary? 1

In the song “Live it Up,” written by R&B songwriter John Legend, the lyrics reflect a shift from a life of struggle and hardship (no more robbing Peter to pay Paul or putting it in the lay-a-way) to one of prosperity and celebration of the good life.  Similarly, this is what occurs when we advance in our career or business and experience a gradual increase in income that creates the opportunity to elevate our standard of living.  Whereas Outback was the go-to back in the day when times were leaner, Rathbun’s is the place for a good steak now.  K&G was a staple for suits when ends didn’t quite meet then Men’s Wearhouse became the norm as cash flows improved followed by customized threads compliments of a personal tailor. Those clothes have to go somewhere right?  No problem because that income helped get a mortgage approved on a dream house with a huge walk-in closet and 3 car garage for those dream cars too.  All the hard work has paid off and the good life is here, but is it here to stay or is it temporary?

If you are a high income earner with no game plan to accumulate wealth, the reality is that your lifestyle may be at risk.  Think about it.  If you lost your job today, how would the mortgage, car note, groceries, nanny, and kid’s private school tuition get paid and how long would your savings support these obligations? If the outlook is grim and you’re back to robbing Peter to pay Paul, then you may have a higher level of paycheck dependency than you know.

Many of us take our income for granted possessing a false sense of comfort in knowing that the next paycheck will soon come.   This blind euphoria is like riding on a calm river before the waterfall. All is well until it’s not. It’s the reason I’ve met prospective clients over the years wanting to invest $100,000 for the next 4-6 years because retirement “snuck up on them” and they had not saved over the last 30 years (I mean zero) and needed to catch up even though they were earning $300k+ per year during that time.   Shockingly, despite that short savings window, some expected to replace a good portion of their income!  Remember that waterfall?

Ideally, your dependency on your salary should become less over the years as you build your wealth, but this requires proactive and deliberate planning on your part.  Here are some quick tips to put you on the right path:

  • Manage cash flows:  No more spending on a whim. Track & analyze your spending and cut back on non-essential purchases. Implement a budget and add investing as an expense line item.
  • Work toward saving 15-20% of your income annually:   Your savings rate is actually more important than your rate of return. Building wealth requires that adequate amounts be saved monthly to reach your goals & your 401k contributions alone likely won’t be enough. Keep in mind that employer contributions count too!
  • Invest excess cash in the bank: Money doesn’t grow on trees or in banks either these days. Transition cash beyond the equivalent of 6-12 months living expenses to your investment account so it can grow for you.
  • Invest in a tax efficient manner: Taxes reduce your wealth! Utilize strategies that limit their impact on the growth of your assets.
  • Diversify assets:  Be sure your portfolio is properly diversified across the various asset classes to help control volatility and improve long term performance.

Here’s to the good life lasting a lifetime!

Andre Williams is the Founder & President of Pivotal Wealth Management, LLC, an independent financial advisory firm that offers a suite of wealth management, retirement, and insurance solutions for clients. He can be contacted at 404.969.1214 or emailed at awilliams@pivotalwm.com.