What Is Wealth Accumulation?

Wealth Accumulation is the process of accumulating enough wealth to have financial peace of mind. You are, essentially, raising your net worth over time in order to hit a point of financial stability and consistency. Although many people want to accumulate wealth, living expenses, debt and uncertainty about how to plan for retirement make it difficult to accumulate wealth. Unfortunately, many people run out of money during retirement. People fail to accumulate wealth because they don’t have a step-by-step process for how to accumulate wealth successfully.

3 wealth accumulation mistakes people make

  1. Don’t save – not saving, not saving enough or not saving in the right place are mistakes you need to avoid in order to accumulate wealth.
  2. Spend too much – spending more than you make is an obvious no-no. Spending all you make isn’t good either. Following a well-structured budget that allocates your income into different percentages for different categories (savings, expenses and debt), is a must for wealth accumulation.
  3. Lose money – losing money can rip the rug out from under you financially and put a stop to your wealth accumulation. There are many ways to lose money, such as debt, poor investments, and undefined budgets.

Avoiding these three common mistakes is certainly a place to start with wealth accumulation. But to effectively progress toward the accumulation of wealth, you’ll need the right strategy—and a strategy that you can start using right now.

How to accumulate wealth

There are five key components to wealth accumulation that are critical to get right. The order of these five key components is also important. The problem is many people don’t know what these steps are, or they don’t get them in the right order.

A step-by-step guide for wealth accumulation:


#1 Protection

Protection always comes first and foremost with wealth accumulation. Protection is more important even than savings. Without protection, you risk losing all your accumulation of wealth, leaving your family and business associates in a bad place. If you don’t protect what you already have, it’s nearly impossible to increase your net worth over time. 

For example, if you invest your savings or retirement plan in the market and the market crashes, you could easily lose 50% or more of your account value. This could ruin the retirement and wealth accumulation plan you were counting on. What happens if you lose this money? How do you make up for lost time? What if the market crashes again? There is little to no protection for your wealth or retirement savings in the market. To accumulate wealth, it’s important to have protection.

Life insurance is a good way to get protection—for your family, yourself and your finances. Life insurance, especially whole life insurance, provides for your family and preserves your wealth when you die. Whole life insurance also creates cash value that can be used during your lifetime to help with your wealth accumulation and give you financial options, flexibility and liquidity . For pennies on the dollar, you can get the protection you need. Learn more about the best kind of life insurance for protection here: Whole Life Insurance Pros and Cons

#2 A Good Budget Plan

A bad budget system can be a lot like a fad diet. It may work for a short time. You may be able to cut down unnecessary expenses, pay off some debt and put some money in savings, but it’s so restrictive it makes you feel like a miser. This is not a good wealth accumulation plan.

A good wealth accumulation plan will include a budget system that’s easy to follow, works long-term and doesn’t make you feel too constricted.

The 10-20-70 Rule is a good budget plan that gives you an easy guide for how to use your income in a way that will help you accumulate wealth. There are three main categories your income should be used for: Savings, Debt Management and Expenses. The 10-20-70 Rule allots 10% of your income for savings, 20% for debt management and 70% for living expenses.

As you establish your budget plan, review your expenses at the same time. Not only how much you are spending but how you are spending your money. Consider the kind of purchases you are making. Are they necessities?  Are they helping you accumulate wealth? Review automatically recurring subscriptions. Are they still meeting your needs? Make changes accordingly.

#3 Saving

Saving should be your next focus in your wealth accumulation plan. The biggest catch to saving, and where most people go wrong, is saving money incorrectly. Many people think they can save their money by investing it. This is NOT saving! That’s investing, a separate process. To count as saving, the money needs to be in a safe place where there is no market risk, preferably where it is free from taxation, fees or penalties as well. It also needs to be in a place where you can easily access it. Having your money easily accessible is part of wealth accumulation.

What’s better than saving money, though, is keeping money. Saving implies stashing money away and letting it just sit there. Think of that nice pair of shoes you’ve been saving for a special occasion. They are not being used; they’re just sitting in their box somewhere in your closet being saved. Keeping money means you’re taking care of it. It’s not just hoarded away somewhere. There are several safe places to keep money, a savings account, a certificate of deposit, or a money market account, but one of the best places to keep money is in a participating whole life insurance policy because you have the protection of life insurance as well as the guaranteed growth, any dividends, and the life benefits that are part of a good whole life insurance policy.

This brings us to the next question, “How much should I be saving (or keeping)?” To make good progress with your wealth accumulation you should be keeping 10-30% of your income. Following the 10-20-70 Rule, you can quickly calculate how much you should be keeping based on your income.

10-20-70 Rule


#4 Managing Debt

When people try to accumulate wealth, sometimes they feel pressured to invest money before they pay off debt. But many people will actually make a higher rate of return managing their debt than they would investing!

Managing debt doesn’t necessarily mean paying off debt. Some debts are preferred debts. For example, if a debt allows you to have better cash flow or provides you with favored tax treatment, it may be a good debt and one you want to keep. If your car payment allows you to get to work where you make money, it could be a good debt. Student loans or high-interest credit card debts that keep accruing interest and eat away at your efforts to accumulate wealth may be bad debts you need to pay off.

Review your debts carefully and identify if they are good debts or bad debts. Create a plan to pay off your bad debts. Then execute your plan.

Once you have paid off your bad debts, reevaluate the amount you are saving (keeping). Chances are the money you were using to pay off bad debts can be redirected towards savings and boost your wealth accumulation plan.

#5 Investing

Investing should always come last in your wealth accumulation plan. There are two main reasons for this:

  1. Investing puts you at risk of financial loss. Not only loss of potential earnings but also loss of your starting capital. This can be detrimental to your wealth accumulation plan.
  2. After establishing the other steps to accumulate wealth, you will be in a better position to handle whatever happens, be it profit or loss.

There is a lot of knowledge and disciplines that must be mastered in order to invest successfully. What you don’t know about investing could ruin you financially and wipe out the fruits of your wealth accumulation efforts. Investing is risky even with the help of a financial advisor you could lose your shirt, and more.

When you are in a position to invest, consider the risk level of an investment. Is it a high risk? Low risk? Keep in mind the market is not the only place to invest. Oftentimes the best investments will be in areas you are familiar with, like your own business. For example, if you’re a mechanic, a good investment for you might be a new lift or a special tool.

A WORD OF CAUTION: Many people think higher risk investments mean they have a higher chance of reward and greater chances to increase their wealth accumulation. This may or may not be true. High risk investments also have a greater chance of loss, which can be catastrophic. Try to find a balance with investments that are likely to help you accumulate wealth over time, not necessarily in one high risk shot. “Slow and steady wins the race” is very applicable when it comes to investing.

People in desperate situations tend to think they must opt for a high-risk investment to “make up for lost time” or “get back to where they started”. This could be dangerous for your wealth accumulation plan.

From time-to-time people do get lucky. Betting on luck, however, is not a sound way to get ahead financially or accumulate wealth. A better wealth accumulation plan is to protect first, build up secure savings (to keep) and manage your debt before heading into higher risk areas like investing.

How people mess up their wealth accumulation plan

Many people reverse these wealth accumulation steps. They try to invest first thinking they’ll make enough money to pay off their debts. Once their debts are gone, they’ll be able to save something and start accumulating wealth. By the time they get around to protection for their wealth accumulation, it could be too late or too expensive. And if an investment doesn’t go as planned and wipes out their accumulated wealth, there are no savings or protection to fall back on. This leaves them only with debt payments demanding repayment. This is the opposite of wealth accumulation. The key to steady wealth accumulation is to begin accumulating wealth by tackling things in the right order and sticking to consistent principles.

When to start accumulating wealth

Like the old Chinese proverb says, “The best time to plant a tree was 20 years ago. The second-best time is now.” It’s always best to take action while you can. If you want to accumulate wealth, the best time to start is now.

Establish your wealth accumulation plan:

  1. Get protection through life insurance.
  2. Create a budget for yourself using the 10-20-70 Rule.
  3. Keep your money in a secure place, such as participating whole life insurance, where taxes, penalties and fees are little to none, where your money is not at risk and where your money is easy to access.
  4. Manage debt; identify good debts and pay off bad debts.
  5. Look for good opportunities to invest. Keep in mind the market is not the only place to invest. Oftentimes the best investments will be in areas with which you are familiar, like your business.

Following these steps will help you create a wealth accumulation plan that works and allows you to accumulate wealth.

If you’re interested in keeping more of the money you make, having it easy to access while minimizing risk, taxes, penalties and fees, schedule a free strategy session with a member of the Life Benefits Team. During this time we will design a whole life insurance policy for you that aligns with your wealth accumulation goals and budget.

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