Marketing Unplugged Explaining Wealth Building To Others
“You can marry more in a minute than you can earn in a lifetime.” The old saying conveys another message: Building wealth is hard. As an advisor you understand how money grows. You might find yourself invited to present a class to a Junior Achievement group on building wealth. Your Baby Boomer client might ask you to counsel their twenty-something grandchildren on how to manage money. What are you going to tell them? The Odds Are Against You Advisors understand consumer spending drives our economy. It accounts for about 70% of Gross Domestic Product (GDP). Americans have turned shopping into a sport. We are conditioned to believe we aren’t happy unless we are spending money. Don’t forget taxes. When you shop, an additional 6-9% usually gets tacked on as sales tax. You pay Federal and state taxes on your income. You contribute to Social Security. It’s likely you pay a portion of your health plan costs at work. Building wealth is hard because we are conditioned to living on cash flow and using debt to cover additional expenses. Start With the Money You Don’t See Let’s assume your twentysomething audience are college educated and have decent, jobs with big companies. They are secure. The easiest money to save are dollars that you don’t see. Usually these are deductions from your paycheck. Ideally they utilize pretax dollars. Your first piece of advice for building wealth is to enroll in the 401(k) plan offered at their firm. This usually involves monthly deductions of pre-tax dollars. Although the economy has forced firms to cut back on their generosity, there’s usually some form of company match. The rationale is simple. If your paycheck is a little smaller, you’ll find a way to get by. If, a twentysomething The Register | July-August 2016
“You can marry more in a minute than you can earn in a lifetime.” The old saying conveys another message: Building wealth is hard.
person is putting away money they realistically won’t access until they are 60+, they have a long time horizon. Equities have traditionally outperformed other asset classes over long periods of time. Continuing on this theme, their company might offer an employee stock purchase program allowing them to buy shares in their own company at a discount to market value. This becomes another payroll deduction, although it’s probably funded in after tax dollars. The shares belong to the employee, usually with no restrictions. The company might award employees stock options or restricted shares in the company. This is an excellent retention tool from their point of view, because several years must pass before they go live or the share price must increase substantially to make exercise worthwhile. However, it’s another form of wealth the employee is building.
Many companies compensate employees using a salary and bonus structure. This helps keep costs under control since bonuses are determined by a combination of how well the company does and the employee’s performance. Large or small, bonus checks are a windfall. This can be directed towards savings and investment. Corporate America has been waging a war for talent. If you are good at your job, there’s likely another firm somewhere that wants to hire you. During the dot.com boom in Silicon Valley they joked “You can change jobs without changing parking lots.” Upfront bonuses are often one of the inducements to move. Yes, you are loyal to your firm. However, the right opportunity might come along coupled with “An offer you can’t refuse.” Take that check and invest it. So far, wealth building starts at their job. It involves their 401(k), company stock purchase plan, stock options and bonuses. Page 13