Personal Wealth Plan: A Lifetime Financial Roadmap

Introduction: Starting Point and Financial Mindset

My personal wealth plan is focused on a number of factors that I believe will unfold throughout my lifetime. These factors concern my career choice, my lifestyle choices, and my retirement goals and objectives. Knowing and understanding how to reach those goals — at least financially — provides me with the pathway I need to take in order to achieve the most effective results. With a comprehensive knowledge of the various financial tools available, I can make the choices that seem most appropriate for achieving my life goals.

Early Career: Building the Foundation (Ages 23–30)

Currently I am a college sophomore with approximately two to three years of schooling ahead of me before I can even think about setting aside a portion of my income for savings and investments, especially since I am essentially living off the good graces of my parents and the government in the form of student loans and grants. Having accomplished my short-term goal of graduating from college, my financial plan will then be fully implemented. Until that time, I live frugally on meager earnings.

Once I have graduated, I plan on landing a job in my field of study with a starting salary of between $40,000 and $50,000 per year. I understand that the job market can be competitive, but with preparation and determination it should not be too difficult to find a position even in a tough environment. With monthly earnings of approximately $3,500 to $4,000, the plan is to save and invest at least 10% of my gross earnings. Putting aside $300 per month on the low end should allow for a long-term average return of approximately 10%. Historically, 10% is what equity investors have achieved on average per year. With that type of return, my investments will double every seven years — a principle commonly known as the Rule of 72.

Mid-Career Growth and Family Expenses (Ages 30–44)

If I begin work at the age of 23, by the age of 30 my savings will have grown to approximately $35,000. I plan on being married and starting a family by that time, and with that will come adjustments to my income and spending habits. I will now be responsible for other family members and their needs — food, shelter, clothing, and recreational activities all come to mind. Those items cost money. Therefore, my savings rate will remain constant on a dollar basis, but not necessarily on a percentage basis. Since seven years will have elapsed since I was first hired, my responsibilities at work will have changed and grown more demanding. My pay will have increased as well, and I will be earning over $70,000 per year. My monthly contributions to savings and investments will have grown to $500 per month. My next milestone is age 37, and until that time I will leave my investment strategy the same — aggressive growth with little allocation to fixed-income vehicles. I am still targeting a 10% annual rate of return.

When I am 37 years old, I check my investments and discover that I now have a portfolio of approximately $128,000. During the preceding seven years I have fathered three children — two boys and a girl — and they are now at an age where the private schools they attend are costly. The house my spouse and I purchased is quite substantial, and two cars, insurance, and other of life's amenities are all crowding in on the investment picture. For the next seven years I decide to forgo monthly contributions to the portfolio, but I choose not to change the underlying investment strategy.

The next seven years pass, and I am now 44 with gray showing in my hair and small wrinkles appearing around my eyes. I check my investments and discover that the 10% rate of return has held true. Because of that, my investment portfolio has grown to a quarter of a million dollars. The power of compound interest is evident: even without new contributions during those years, the portfolio nearly doubled on its own.