How To Manage Wealth And Seven Steps To Start Today

If you have asked yourself whether and how you should manage your wealth or have it managed, you have come to the right place. In this post, we will discuss a few essential aspects of wealth management. After that, you can decide whether you want to take things into your own hands or whether you want to hire an external consultant or advisor for this. That said, we will discuss in particular what wealth is in the sense of wealth management, whether you need wealth management and whether you can do it on your own.

At the end of this article, I will show you how I manage my assets extremely cheaply and quite efficiently. It may be an exciting option for you too. As always on the TEV blog, the information is entirely free-of-charge for you. Please keep in mind that this post here is for your information only, and I am only reflecting on my own experiences and thoughts here.

Well, let’s start by taking a look at the table of contents. You are welcome to skip topics that you are not interested in by simply clicking on the topic that interests you.

What is wealth?

The term “wealth” is more complicated than one might initially think. Wealth is not subject to the laws of nature. It cannot be seized with concepts of mathematics, physics, or chemistry. You can count your money, but that means nothing.

Becoming wealthy is the search for a way to fulfill one’s needs independently and freely. Wealth is, therefore, a means to reach all levels of need satisfaction. Accordingly, wealth is more a description of a state and a status. But let us leave it at this point. Such theoretical considerations are not relevant for the practical guidance provided here.

Given that, wealth management is a crucial area of private life that affects everyone. Credits, taxes, insurances, or debts are aspects that every person has to deal with. The same applies to the organization of your retirement or your investments. It can make no difference whether someone has much or little money. Hence, you should include everything that has a specific value for you under your wealth, whether material or immaterial.

What is wealth management?

To understand how best to manage your wealth, we first need to understand what wealth management is. According to Wikipedia, wealth management includes the following activities.

Wealth management or wealth management advisory is a form of investment management and financial planning that provides solutions to a wide array of clients ranging from affluent to high-net-worth and ultra-high-net-worth.

This definition corresponds to the typical descriptions of wealth management. However, I find it misleading. It suggests that wealth management is only for those who have enormous amounts of money or are otherwise referred to as “wealthy”.  Such a definition is too short-sighted. Do not consider asset management as a professional service reserved for rich people only! Consider asset management as a form of dealing with your assets in a certain way. It is not about having assets or spending them, but about “managing them”. It is about looking at one’s assets in the same way as a manager with a long-term horizon looks at his company. Therefore, wealth management fulfills three tasks:

Wealth management

  1. The existing assets should be retained.
  2. Existing resources should be used as sparingly and efficiently as possible.
  3. In addition to asset maintenance, the asset value should grow as risk-free as possible.

Wealth management thus comprises the organization of your assets, whatever they may be.

Do I need wealth management?

Yeah, you do! Absolutely! Everyone should keep an eye on their wealth, take care of it, and try to increase it. You should take measures to preserve your assets, and you should also ensure that they are used as effectively and economically as possible. And you can, of course, try to increase your wealth. You heard, right.

Even a small pocket cannot prevent anyone from making more out of it. All you need is a lifestyle in which you spend less than you earn each month. The resulting cash flow opens up many opportunities for you. You can pay off debts and become debt-free. Furthermore, and this is the crucial point, you can invest your money. Buy shares of companies and profit from their success. You don’t have to own millions of dollars for that.

Exponential growth and compound interests
Exponential growth and compound interests (Source: Exponential growth)

From the smallest seed, a tree can grow. How? Compound interest and exponential growth are the magic words here. The human brain tends to misinterpret exponential growth. But with exponential growth, a high impact can be achieved by small investments over a long period.

Let me give you an example. During my university studies, and when I was writing my doctoral thesis, I invested and laid the foundation for a passive cash flow, which now exceeds 140 EUR per month. I only started with smaller investments of 200 EUR per month. Today, I receive this amount per month as dividends from my companies. Over the years, the payouts will become even more extensive.

Compound interest effect 6 percent return p.a. for 50 years with an initial investment of 10,000 USDEUR + 4,000 USDEUR p.a.
Compound interest effect 6 percent return p.a. for 50 years with an initial investment of 10,000 USDEUR + 4,000 USDEUR p.a.

If you have more money to invest, that is great. If you have less, that’s not bad at all. Use the savings plans of a broker to invest in the stock market every month.

Accordingly, you should start to manage your wealth. You should not limit yourself to maintaining your current status, but try to use conservative methods to make your money work for you. So let’s get straight to the next topic, namely how wealth management works best. We will take a more detailed look at the individual opportunities and risks here.

How to manage wealth in concreto?

You can carry out your asset management in various ways. There are many external advisors and asset managers who are extremely experienced and have a lot of knowledge. On the other hand, however, anyone can try to manage their assets themselves and invest them profitably. However, there are a few guidelines that you might want to follow.

Do I need a wealth manager?

When several complex factors come together, it can make sense to hire an external manager, which is especially the case with exceptionally high assets, or when incredibly complex tax issues need to be taken into account that you do not understand. It is, therefore, essential to know your limits. In this respect, you should also note that external consultants sometimes require initial assets of $1 million or $10 million. Such experts make sense on this scale, as they sometimes have access to equities that are not traded on the standard stock exchanges.

How can I manage my wealth?

If you decide to start managing your assets on your responsibility, you need to know what you are doing. Remember, this is about your assets, and you should refrain from doing anything that could put them at risk. Please always remember that there is neither the philosopher’s stone nor a fast way to get rich. If someone tells you otherwise, be extremely suspicious.  On the free market, chances always (really always) correlate with risk. Otherwise, our system would not work. The second point is: Please do not believe that anyone in this world wants to give you a gift. Nothing is free, which is especially true when it comes to financial matters.

As far as my wealth management is concerned, I have built three pillars.

  • Active income.
  • Passive income.
  • Conversion.

These pillars are, in turn, carried by a stable foundation. Such a foundation is the basis for your wealth management. It ensures that you know what you are doing, which includes above all education and the ability to develop, improve, and use your skills.

Pillars of wealth management

Accordingly, you need to learn and slowly gain experience, especially if you want to invest your money. The internet offers many opportunities for learning and networking. Education and networking are essential aspects, as we all face the same questions and problems regarding financial issues.

That said, platforms like Seeking Alpha or and individual blogs are great tools to achieve the best with your assets. Such platforms contain excellent overviews or databases. Blogs, in particular, have a characteristic that can be advantageous. Many blogs (including the TEV Blog) see themselves both as senders and addressees of their topics. As it concerns blogs, it is about learning together and making progress together, which is probably the most significant difference to other platforms I used to publish my articles. The TEV Blog articles are meant to be a dialogue offer and not a product to sell.

How to manage wealth: Seven easy ways to start today

7 Easy Ways To Start Today Wealth Management

As you’ve seen, the basics aren’t hard at all. The important thing is to preserve existing assets, use them sparingly, and try to increase their value. With seven elementary steps, you can already do a lot for yourself and your assets. And the best thing is. You can start immediately.

1. Know your assets and liabilities

The first thing you need to know, of course, is what belongs to your assets. If you do not have an overview, you should create a table. What belongs to you, what has value, what is especially important to you, etc. But this exercise also includes breaking down all the liabilities you have, which consists of all fixed expenses that you have to pay each month, for example, subscriptions or loans.

2. Realize savings potential

Next, you should see if you have savings potential and unlock it. Many people are not even aware of how much savings potential lies dormant in their household. Do you pay expensive fees to your bank or for your electricity or gas? See if you need everything you pay money for. Do you have any streaming or fitness center subscriptions that you no longer need? Analyze your fixed costs and check where you can save money or buy cheaper elsewhere.

3. Deleveraging

Being debt-free is excellent. You don’t have to pay interest, and at the end of the month, you might even have a small amount leftover that you can invest. At the same time, not taking on debt means always trying to keep cash flow positive. So try to save up an amount that provides sufficient liquidity for emergencies. If you continue to accumulate money after that, I suggest increasing the pillar of passive income (see above).

4. Reconsider your spendings

In any case, you should wait and give yourself some time to think before buying expensive new things. Often, it is only a first impulse to want new stuff, which is strongly related to your brain’s reward system. Waiting a week to buy expensive things makes you more independent of your mood.

Besides, you have time to inform yourself about this product. What do other people say about it? Is there a better one coming soon, or is it not as good as you might think? If you still think you want it at the end of the week, consider again how long you had to work for it and if it is still worth it.

It is even better if you apply the so-called 30-day rule. The rule ultimately says nothing else but to wait 30 days until you purchase a specific volume. However, this rule is particularly useful if you apply it to all products that are not part of your daily needs.

If so, buy it and enjoy it. We’re all just human beings and not slaves. Being a slave to frugality is no more desirable than being a slave to capital.

5. Know your spending behavior

Do not make yourself dependent on your account balance! Always know where you stand financially, what your current income is, and how much you have already spent this month. A budget book is an excellent way to start tracking your behavior. In the beginning, writing a budget book is extremely exhausting, but it pays off in the long run. If you are trained after some time and have a good overview of your finances, such a book is no longer essential.

Meanwhile, you can also try out apps on your smartphone with which you can track your spendings. But pay attention to proper data protection! You don’t want Amazon to know what you buy every day so they can send you personalized advertising (just kidding, we’re probably not there yet, but privacy is still a severe issue).

Many impulse purchases are due to the reward system of the brain. People get high while shopping. It’s no joke! You should know your brain’s mechanisms and know why you sometimes feel like rewarding yourself or why it makes you happy to buy and unpack new products.

6. Try to invest money you do not need

As said above, I recommend investing money that you do not need in the stock market. Spread the money over many companies or invest in an ETF that tracks a broader market.

With investments in dividend stocks, you can build up a passive income stream. I pursue a cash flow-oriented approach myself, in which I invest primarily in companies paying dividends (dividend companies are an excellent way to generate cash flow). However, the most effective way is to invest in ETFs.

But beware: You should only invest money that you do not need. The stock market is not a one-way road. It can also go down! As always, nobody knows how the market will perform shortly. By all means, avoid using money that you will need tomorrow or next year. Also, do not take on new debts to invest the money (see above). It is always possible that the stock markets will suffer a nasty crash that will cause prices to collapse. In one of my  Seeking alpha analyses, I wrote the following:

 It is a fact that [stock] prices will rise in the long run. It is only important to sit out the sometimes extremely hard crises and to have the psychological strength to withstand crahses. Investors who only started investing after 2009 may not yet be able to assess their risk tolerance because they have not experienced a major stock crash like 2008 / 2009 themselves. That’s why I visualize an extreme price loss before every stock purchase. I ask myself whether I would remain calm even if share prices fell by half or even by up to 70 percent at times. That may sound hard and it is by no means certain that the next crisis will be so dramatic.

However, I am firmly convinced that the visualization of such dramatic events can be extremely successful for one’s own risk management. If investors imagine such a scenario, it helps them to act rationally when the risk materializes. Because nothing is worse than selling in a crisis for fear of further losses.

My general advice is: Be patient! Do not always look into your portfolio. Enjoy your life instead. The opportunity lies in the long term:

Bull vs bear markets

7. If you can, try to generate an additional income

This last step is particularly important because it acts as a lever. If you manage to build up an extra income, that is great. This income can be built up actively through a part-time job or passively through investments. In the beginning, it doesn’t matter, but with the time, you should start to make your money work for you passively. Explore different ways to invest your money.

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Eve Mitchell
2 years ago

I loved your tip about looking for your savings potential and realizing it. My husband owns a company that is having some issues with handling money. I think it’d be beneficial for them to talk to a financial planner to get everything sorted out.

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