Five Financial Planning Tips to Grow Your Net Worth

Start Saving and Investing as Soon as Possible

Like planting a tree, the best time to begin investing is having done so already; the second-best time is now. Spending most or even all your income can be tempting, but one of the most reliable ways of growing your net worth is by strategically saving and investing a portion of your income and allowing it to grow over time. Early investment also gives you more experience with investing over your lifetime, so you may become better equipped to make wiser financial decisions as you age based on the experience you gained when you were younger. 

Automate Your Investing

Humans tend to forget or only inconsistently follow through on their goals when they do not have a plan; achieving the goal requires persistence. An efficient way to ensure something gets done consistently is to set up an automated system. If you plan to invest a certain amount of your income every month, investigate how you can automate that process to make it easier for you to follow through. Many financial advisors can do this work for you by withdrawing the money quarterly or monthly and investing it on your behalf according to your established financial plan. Alternatively, brokerages and online investing platforms often allow investors to automate transfers from their bank to their investing account. If you choose this route, remember that simply transferring money to your account is not enough. You will still need to choose and purchase investments in the account.

Diversify Your Investments

Diversifying your investments is a popular way to reduce the risks associated with investing because it ensures that your financial future is not tied to only one business or type of investment. Many long-term investors choose to invest in a mix of stocks and bonds using mutual funds or index funds. Some investors include other asset types, such as cash and cash equivalents (e.g., money in a high-yield savings account or certificates of deposit), real estate, cryptocurrency, or commodities such as gold or collectibles, in their portfolios. When you set a guideline for how much of your total investment portfolio each type of asset will make up (e.g., 80% stocks and 20% bonds or 60% stocks, 35% bonds, and 5% cash equivalents), you are choosing your asset allocation. Your ideal asset allocation can be as simple or as complex as you like, and the allocation will be determined by your risk tolerance, time horizon, and specific financial goals. There is no one best asset allocation, and many different strategies could be a reasonable path toward meeting your goals. 

Lower Your Tax Burden

A significant portion of your income likely goes toward income taxes, and the lower your tax bill, the more money you will have to put toward increasing your net worth. Of course, you should not avoid paying the taxes you rightfully owe, but with some strategic planning can help to ensure you are not overpaying. 

It is essential to take advantage of every tax deduction available to you by being aware of the available deductions and credits applicable to your situation. One of the most significant decisions you or your accountant can make to reduce your tax burden is choosing when and when not to itemize each of your deductions. In some cases, it is better to take the standardized deduction; in others, itemization is the way to go. Keeping detailed records of all your tax-exempt or tax-deductible expenses will help you make the best call each time. 

Additionally, it is often wise to prioritize investing in tax-advantaged accounts, such as a traditional or Roth 401k, traditional or Roth IRA, health savings account, or 529 plan. Keep in mind that tax-advantaged accounts are usually intended for a specific purpose, such as retirement, health expenses, or education expenses, and they may have restrictions on how and when the invested funds can be taken out and spent. However, many investors are saving money for these sorts of expenses anyway, so it is worth investigating what types of tax-advantaged accounts are available to you.

Work with Trusted Financial Professionals

Having a certified public accountant and trusted financial advisor collaborate on your behalf is beneficial for many high-net-worth individuals. Both types of professionals have their own areas of focus and can support your financial plan in unique and valuable ways. It is important that these individuals communicate so that they each have a holistic understanding of your financial situation and can plan and act accordingly. When choosing whether to work with any financial professional or deciding whom you want on your financial team, always weigh the costs, benefits, and potential conflicts of interest each professional brings to the table. Choose a team you can trust to work well together and help you achieve your goals.