How to Transform Your Wealth

How to Transform Your Wealth

If you’re earning between $150,000 and $2,000,000 yet feel trapped in the ‘new middle-class high-income’ category, this guide is tailored for you.

In the tech world, many dream of translating their hard work into wealth, seeking strategies for a more secure future. However, there’s no shortcut to riches. Personal growth and commitment are as essential to your financial journey as they are to diet, exercise, and relationships.

Drawing from my personal experiences as a Bay Area resident and professional, thousands of hours helping thousands of clients in all stages of life, and insights as a Certified Financial Planner® and Chartered Financial Analyst®, I’ve crafted key principles for financial transformation. These are rooted in control, awareness of potential hurdles, and adopting a contrarian wealth mindset.

Rule #1: Control of spending is the key life habit to wealth.

It’s not about your earnings or net worth, but your spending and saving habits.

Chasing high incomes through unfulfilling jobs or relying on market highs won’t secure wealth. These factors, like unpredictable investment trends or unlikely IPO windfalls, are beyond your control and can lead to emotional distress.

The real key? Delight in saving.

True control lies in monitoring your spending and consistently investing. To illustrate, 99% of Warren Buffet’s wealth was gained after he turned 50. Patience and control are key.

How a Financial Advisor Can Help:

We delve into your budget, guiding your spending limits and supporting behavioral shifts towards more strategic financial choices. We can show you the truth even if it’s painful at first.

Rule #2: Engage Actively with Your Spending

Prioritize budgeting unless you’re saving half your income or your net worth is above $25 million. Keep tabs on your monthly savings percentage and credit card bills. When making big decisions, like car purchases or home renovations, assess if cash or credit is best. Regularly, ideally monthly, review your spending. For expensive items, keep a wish list. Review it at the end of the month and decide if you can “afford” it based on how much you already spent this month.

How a Financial Advisor Can Help:

Begin with a cash flow analysis. If you’re uncertain about expenses or feel you’re not saving adequately, a detailed budget review is essential. Tackle overspending using budget tools, daily expense tracking, and regular coaching. Before significant expenses, seek our advice to maintain your financial stability and growth path.

Rule #3: Reign in Your Recurring Expenses.

Indulging occasionally is fine, but unchecked recurring expenses are a financial quagmire. The most detrimental? Overextending on a home purchase. Qualifying for a $3 million house doesn’t mean it’s financially prudent. Avoid interest-only or adjustable-rate mortgages that seem to “solve” the issue—I’ve witnessed their disastrous outcomes. If a 30-year fixed rate pushes your finances to the edge, it’s unaffordable.

Other pitfalls include multiple car payments, student loans, numerous subscriptions, and pricey memberships. Strive to eliminate these expenses, focusing on paying off high-interest debts and evaluating the necessity of each recurring expense.

How a Financial Advisor Can Help:

Consult us before making substantial commitments like homes, cars, or other significant expenses. We assess how these recurring costs affect your long-term financial health. Through cash flow analysis, we offer scenario testing, transforming subjective choices into objective decisions, thereby guiding your wealth-building journey.

Rule #4: Consistently Feed Your Investments.

Consider this hierarchy of saving strategies:

  1. 401k match
  2. ESPP
  3. 401k max
  4. HSA
  5. Mega backdoor Roth
  6. Backdoor Roth

You might not have access to all these avenues. Prioritize those available, and as you move down the list, your cash reserves will likely grow.

Now, divert these cash reserves into your taxable investment portfolio. Regular contributions, whether during market slumps or with periodic sums, ensure steady growth. Understand this: if you begin investing at a bull market’s peak, it might take a considerable duration, possibly over a decade, for your investments to regain their initial value. But not investing when the market dips means missing potential gains. Make investing automatic; opt for straightforward routes like index funds or adding to your managed portfolio.

During market declines of any magnitude, if you’re still working, you shouldn’t sit idle in cash. (P.S. Always have 3-6 months of emergency cash on hand.)

How a Financial Advisor Can Help:

Advisors, like myself, are biased. The more money you delegate the more money we make. However, the surest way to see your managed portfolio grow through all market conditions is to keep adding to it. The two ways to witness notable growth in a managed account: starting at a bull market’s onset (unpredictable) or continuous contributions (within your control). A proactive advisor will prompt you to capitalize on market downturns, which is a strategy you should embrace.

Rule #5: Smart Diversification and Tax-Aware Investing.

While it’s conceivable to have wealth tied entirely to stock index funds, it can lead to missed opportunities, long periods of loss, or simply an unbalanced risk approach. Many individuals have portfolios skewed toward certain stocks due to past successes, employer stock accumulation, or a lack of understanding of alternatives like bonds, real estate, commodities, and more.

However, remember, there will come a time when your portfolio must actively support your lifestyle. The prospect of facing a substantial market downturn and watching a significant portion of your wealth diminish, potentially taking years to recover, is a risk you must mitigate.

The strategy involves more than just correctly timing what to sell; it’s about the rationale behind the sale and the reinvestment plan, all while keeping an eye on the tax implications. It’s not prudent to liquidate all high-performing assets simultaneously to reduce risk. Instead, adopt strategies like tax-loss harvesting and capitalize on annual market fluctuations. Utilize market dips as opportunities to offset gains with losses, and learn when it’s right to cash in on profitable investments due to risk.

Furthermore, it’s time to broaden your investment world. Explore bonds, real estate, and other previously unconsidered investment avenues. Understand how these new elements can provide balance to your wealth.

How a Financial Advisor Can Help:

A competent financial advisor isn’t just a planner but a strategist who can identify opportunities for portfolio optimization, helping to achieve an equilibrium between risk and reward. They consider your current investments, guiding you toward a more resilient portfolio. Advisors also play a crucial role in expanding your investment scope, assisting in navigation through the complexities of diversified assets like real estate or small business investments, and ensuring each step is in line with your financial aspirations and comfort with risk.

Rule #6: Prioritize Best After-Tax Returns Over Passive Cash Flow.

While “passive cash flow” is a trendy term in personal finance and is viral on social media, it shouldn’t be the sole focus. Such investments, like real estate, can offer tax advantages, but blindly chasing them might make you overlook other profitable avenues.

Every investment is governed by five pillars: capital appreciation, income, risk, tax, and effort. An emphasis on total return—both capital appreciation and income—is crucial. Two investments yielding the same return might differ in risk, tax implications, and required effort.

For instance, a real estate investment might offer tax deductions, but if another investment gives better returns even after taxes, why focus only on real estate? If the returns are comparable post-tax, but one demands more effort, is the additional labor justified?

How a Financial Advisor Can Help:

We provide insights into potential returns, associated costs, tax implications, and the effort needed for different investments. Our goal is to ensure you select assets that maximize returns, and minimize taxes, all while aligning with your comfort and effort levels.

Rule #7: Don’t Rely on Trends to Make You Wealthy.

Financial media excels at spotlighting hot trends, be it meme stocks, cryptocurrencies, or tech shares. However, they often fall silent when these trends wane or reverse. While some trends represent genuine market evolution, others are merely speculative bubbles.

It’s easy to feel pressured by social media to join what seems like a universal gold rush. But remember, market movements often need just a slight imbalance between buyers and sellers. The buzz doesn’t necessarily equate to widespread participation.

The real test with trends isn’t just entering at the right time but knowing when to exit. Trends can be volatile, so timing is everything. A slight delay in either buying or selling can make a significant difference in outcomes. Combine this with recognizing a tax bill at every pivot and you are walking a razor edge of profit vs failure.

Chasing the ‘next big thing’ can lead to frustration and potential financial setbacks. Instead, prioritize steady growth and diversification. The gradual build of wealth often proves more dependable in the long run even if it’s boring.

How a Financial Advisor Can Help:

While I won’t dismiss or endorse any trend outright, I can help you assess its validity concerning your broader financial goals. By focusing on safeguarding your primary investments, I can guide you in responsibly exploring new avenues without jeopardizing your core assets.

Rule #8: Adopt a Conservative Approach to Financial Decisions.

“Expect the best, plan for the worst” is a principle that should guide your financial strategy, whether you’re considering investment trends, real estate, career changes, equity compensation, or new business ventures. Notable investors often attribute their enduring success to minimizing losses where possible.

While avoiding losses entirely is unrealistic, you can significantly mitigate potential downsides by planning. When facing a financial decision, critically assess the risks. Ask yourself: What could go wrong? If multiple factors go awry, what will the consequences be? What are my alternative options in each scenario? How will I determine my next steps? Can I withstand the potential loss while I navigate towards a positive outcome? Understanding the worst-case scenario is crucial — can you bear it if it unfolds?

How a Financial Advisor Can Help:

A competent advisor is invaluable in this conservative approach, capable of running various scenarios and assessing potential outcomes. They can help weigh alternatives, presenting clear pros and cons. For instance, when delving into real estate, your advisor can assess potential returns from properties. If you’re debating whether to retain company equity, they can project scenarios, including total loss, a 50% decrease, or a doubling of your assets. They’re also instrumental in helping determine the minimum acceptable salary in a career transition, among other financial pivots. By preparing for the worst-case scenarios with your advisor, you make informed decisions, anchoring your financial security and confidence.

Rule #9: Embrace Thoughtful Risk-Taking.

While conservatism is valuable, it shouldn’t deter you from embracing risk entirely. Progress often stems from strategic risk-taking, whether it’s in investments, your career, or personal choices.

Engaging in calculated risks involves a clear assessment of your current situation, understanding potential pitfalls, envisioning the ideal outcome, and mustering the courage to take action.

In personal finance, thoughtful risk-taking typically falls under two umbrellas: exploring new investment avenues and considering job transitions.

Delving into unfamiliar investments might feel daunting. But by not exploring every potential avenue for your money, you might be shortchanging yourself. Effective risk-taking in investing requires a combination of knowledge, introspection, and dedication. Understand the investment thoroughly, gauge its alignment with your financial goals and temperament, and be resolute in your commitment to it.

Switching jobs, on the other hand, is a monumental decision. If you feel misaligned with your current position, believe there’s untapped earning potential elsewhere, or are generally discontented, it might be time for a change. Factor in all stakes, especially if you have familial responsibilities. Engage in open discussions with significant others and evaluate every aspect. If you trust your judgment and deem the shift propitious, boldly move forward.

How a Financial Advisor Can Help:

An advisor can provide a nuanced perspective on potential risks, examining them through both the lenses of financial security and potential growth. They can guide you in establishing a robust safety net and equip you with pertinent information, ensuring you’re well-prepared as you venture into new territories.

Rule #10: Pursue Work That Fulfills You, Even If It Pays Less.

Many high-performers find themselves trapped in a cycle of demanding jobs, escalating expenses, and substantial incomes. They might secure positions many aspire to, but these roles can be soul-sapping. The substantial pay supports an enhanced lifestyle, which in turn, heightens reliance on the job and amplifies performance pressures. Over time, the vision of an end becomes the sole driving force to endure daily challenges.

While striving for financial independence is commendable, solely focusing on wealth to attain it presents pitfalls.

Firstly, sustaining a certain lifestyle through early retirement requires immense savings, which might not be feasible for many. Secondly, the impatience stemming from wanting rapid wealth can lead to hasty decisions, potentially causing setbacks. Lastly, genuinely driven individuals rarely find contentment in idleness.

Instead, consider a more balanced approach: seek roles or career paths that genuinely resonate with your passions, even if they offer a reduced paycheck. This can not only provide a foundation for your existing lifestyle and investments but also open doors to potentially more rewarding opportunities.

How a Financial Advisor Can Help:

We can assist you in determining the minimum income required to sustain your desired lifestyle and achieve your goals. Armed with this insight, you can confidently navigate towards a fulfilling next chapter in your career.

Rule #11: Arbitrary Wealth Goals are Bad. Knowing How Much You Can Spend is Better.

Being a millionaire isn’t the universal benchmark it once was. The real question: What’s enough for your unique needs?

For some, $10,000,000 might be abundant, while others might find it lacking for retirement.

Chasing general wealth targets can prompt hasty choices or, conversely, breed complacency. Your financial journey is personal. Understand your goals, and the costs involved, and tailor your strategy accordingly.

If you’re unsure of your financial needs, start by assessing your maximum annual expenditure for a desired retirement age. Then figure out which expenses you can reasonably adjust.

How a Financial Advisor Can Help:

Advisors offer a deep cash flow review, helping you move from broad benchmarks to personal milestones. We aid in adjusting spending, tracking progress, and evaluating life choices. Our expertise ensures you navigate your unique financial journey confidently.

Rule #12: Prioritize Financial Compatibility in Relationships.

Finding the ideal partner is challenging, especially in places like the Bay Area or New York. Yet, compatibility extends beyond mutual interests.

Research indicates that financial disagreements contribute to nearly 40% of divorces. In places like California and New York, the financial ramifications of a divorce can be immense. And it’s not gender-specific; both men and women need to be vigilant about potential financial setbacks following a separation.

It’s not about selecting a partner based on earnings. High incomes can sometimes lead to unchecked lifestyles. True compatibility encompasses open communication about major financial decisions, aligning spending habits, setting and meeting mutual goals, and achieving a balance through compromise. Upholding promises and transparency is paramount.

Choosing right is a challenge. Good luck!

How a Financial Advisor Can Help:

Our role is to improve financial communication between partners. By understanding both perspectives, we utilize financial planning to set and manage realistic expectations, ensuring both parties remain accountable. We can guide and mediate financial decisions, offering unbiased insights to help your relationship thrive.

Rule #13: Kids are expensive. Your kids can borrow for college education, but you can’t borrow for retirement, don’t be a burden.

The American dream used to be a house of your own, a white picket fence, 2.5 kids, and a golden retriever. Now you have reached adulthood if you have some version of a doodle and don’t live with your parents.

Amid this evolution, one truth remains: raising children is costly. In striving to offer them every opportunity, we often sideline our financial well-being.

While there are numerous avenues for financing a child’s education, such resources are nonexistent when it comes to funding retirement. It’s crucial to remember: that your children can thrive in public education, but a moneyless retirement is unsustainable.

The most valuable legacy you can leave your children isn’t solely a paid college tuition but also ensuring your self-sufficiency in later years. Relieve them of the potential financial responsibility of caring for you in your old age.

How a Financial Advisor Can Help:

Our role involves assisting you in balancing present financial obligations with future needs. This includes assessing educational costs, exploring various opportunities, and emphasizing your retirement planning. We guide you in making informed decisions that consider your child’s evolving prospects as they mature into adulthood.

In Summary

Based on my personal experiences, observations from my accomplished clients, and lessons from my tenure in finance, I’ve shared these guiding principles. While I might not have covered every nugget of wisdom, and some points might be debatable, I sincerely hope they resonate with you. Embracing and incorporating these guidelines daily may lead you to a future where you find yourself richer in ways you hadn’t imagined.

Here’s a parting thought:

Letting the fear of missing out or comparing oneself to others dictate one’s journey often steals the joy from it.


2024 Disclosures

RHS Financial is an SEC registered Investment Advisory Firm and distributes this presentation for informational purposes only. This presentation ( hitherto referred to as the presentation throughout this disclosure), blog post, infographic, slide deck or whatever form of informational modality the reader wishes to describe this as is provided for informational purposes only and should not be construed as investment advice in any way.

We believe the information, including that obtained from outside sources, to be correct, but we cannot and do not guarantee its accuracy in any way. RHS Financial uses information from outside sources to develop graphs, charts, infographics, etc. to enhance this presentation and while we believe the information from these outside sources, to be correct, we cannot and do not guarantee its accuracy in any way,

Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors who may be employees of but do not necessarily reflect the views of RHS Financial as a company. There can be no guarantee that developments will play out as forecasted. The information in this presentation is subject to change at any time without notice. This presentation contains “forward-looking statements" concerning activities, events or developments that RHS Financial expects or believes may occur in the future. These statements reflect assumptions and analyses made by RHS’s analysts and advisors based on their experience and perception of historical trends, current conditions, expected future developments, and other factors they believe are relevant. Because these forward-looking statements may be subject to risks and uncertainties beyond RHS Financials’ control, they are no guarantees of any future performance. Actual results or developments may differ materially, and readers are cautioned not to place undue reliance on the forward-looking statements. In a nutshell; these are our best guesses and please don’t assume they are fact.

Mentions of specific securities, investment products, investment indices, companies or industries should not be considered a recommendation or solicitation. Data and analysis does not represent the actual or expected future performance of any investment or investment product Index information is used to illustrate general asset class exposure, and not intended to represent performance of any investment product or strategy.

This post may contain references to third party copyrights, indexes, and trademarks, each of which is the property of its respective owner. Such owner is not affiliated with RHS Financial and does not sponsor, endorse or participate in the provision of any RHS’ services, or other financial products. Index information contained herein is derived from third parties and is proffered to you unaltered as we derived it from the third party.

RHS Financial, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where RHS Financial, LLC and its representatives are properly licensed or exempt from licensure. This presentation is solely for informational purposes. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by RHS Financial, LLC unless a client service agreement is in place.

If the client is deemed suitable and agrees, RHS may employ leveraged strategies for these clients. Leverage attained through margin on a client’s account can add additional risk. While RHS tends to seek to improve return with theses strategies by applying leverage to less risky indexes, there is no guarantee that that RHS will lower risk or improve returns.

RHS Financial. 4171 24th St. Suite 101 San Francisco, CA 94114

Alex Caswell

Alex Caswell

Alex Caswell, CFA, CFP® is our Wealth Planner at RHS Financial. His motto is every dollar counts. Alex brings financial planning expertise, white glove service, crazy creativity, and polite persistence when it comes to championing our client’s goals.