How to Better Manage Your Wealth

Some people find that the wealthier they are, the less control they have over their money. Liz Miller – author of Clutter-free Wealth: A Goal-oriented Guide to Gaining Control of Your Affluence – believes this is a byproduct of success, especially for those who have built their own success. As people make more money, they randomly invest in different instruments and end up with a cluttered portfolio.

“Early in their career, people find that they are able to save a fair amount and typically go to a friend or go online to a mutual fund company and make a purchase,” Miller observes, adding that the first purchase is sometimes an insurance product.

Miller points out that as they become more successful and add to their savings or investments, they also start realizing that they need something different and that they need to diversify – but they may not have a clear idea about what they want. “A lot of times, wealth gets cobbled together until a time when they realize that they need a professional advisor,” she says.

Miller cautions that even if that first advisor was from a well-known firm, that advisor would probably have seen only a portion of the investments and wealth of their client because there are limits to what they could give advice on. This means that even if a person seeks professional advice, they would still be periodically putting together their own list of everything they have to see what their total wealth was.

“That is how we get to this point of a cluttered garage and this feeling that a lot of wealthy people have of not knowing what they own or not being in control – it’s not that they aren’t making decisions, but there isn’t enough confidence in how it all fits together,” Miller points out.

According to Miller, the secret to mastering one’s finances is to first identify short-term and long-term goals and then align investments with these goals.

“Investments are easy to declutter – if somebody has a variety of accounts, it is easy to simplify that,” Miller explains. Consolidating, taking time to understand what is in each account and then cleaning up both asset allocation and asset location can help.

Another step in decluttering one’s finances is to have clarity about money values – a common one being security. Do you look at money as security?

“Particularly for those who are self-made or those who may have come from a background of struggle – a background with nothing at all or a background in which they saw ups and downs to the family wealth – no matter how much they have in the bank today, they may still always think of their wealth as security,” Miller explains. “They may always have the feeling that it could go away tomorrow.”

According to Miller, a person who cares about protection tends to be a conservative investor while someone who sees opportunity and success generally looks for more aggressive investments and enjoys tracking them.

“If we can track quarter-after-quarter, year-after-year, that the portfolio is hitting the goal we know will get us to the endpoint, how we perform relative to the market becomes irrelevant,” Miller reveals.

“The reason we lose the sense of being in control is because things get way more complicated than they need to be – it is all about simplifying,” Miller says. “We can reach our goals with a simple, straight-line approach,” she adds. “It doesn’t need lots of bells and whistles to be successful.”

From Knowledge@Wharton. May 29, 2018. The original article can be found at http://knowledge.wharton.upenn.edu/article/want-control-wealth-un-clutter-investments/