Acquiring wealth, and protecting it with cybersecurity
This blog is broken up to two main sections - optimizing your personal finance journey and protecting your wealth effectively in a world full of cyber exploitation and cyber attacks.
StaRT with an intentional spending plan
Your wealth-building journey begins with a clear and intentional spending plan, which some people refer to as a budget. To get started, take a holistic view of your financial life. Calculate your net worth by tallying up all your assets (investments, properties, savings, etc.) and all your liabilities (loans and debts). Then, analyze your financial inflows and outflows. Set aside adequate time to do this.
Identify your necessary expenses, like rent or mortgage payments, car costs, groceries, memberships, and business expenses. Also, take note of your discretionary spending, which includes things like dining out, entertainment, subscriptions, and spontaneous (drunk) Amazon purchases. When reviewing your expenses, it's beneficial to examine a three to six-month period and calculate the monthly average, as expenses can fluctuate.
Several apps can simplify this process, such as Empower (my personal favorite - formerly PersonalCapital.com), Mint, and PocketGuard. You can connect your accounts and credit cards, allowing these apps to do the heavy lifting for you.
Once you have a clear understanding of your essential and discretionary spending, you can make necessary adjustments to your intentional spending plan while maintaining a broader perspective. “Trim the fat” where you see fit.
Now, let's explore how to leverage your surplus funds to generate real wealth, with a focus on two proven and highly effective personal finance methodologies.
Personal finance methodologies
There are various approaches to effectively allocate your income and excess money to build wealth. Below, we'll discuss two methods that have a track record of success. It's essential to choose the one that aligns with your current financial situation and personal finance mindset. You’re going to notice both methods have parallels and similar steps, but there’s a significant difference in the psychology behind each.
Picture your financial journey as a staircase with empty buckets on each step and a water spout above the top bucket. As you fill the top bucket and it overflows, the excess flows down to the next bucket, and so on. That's how you'll tackle your debts, invest wisely, and build wealth—one step at a time.
Let's dive into these two methods:
Invest early, pay off debt in parallel (Method 1)
Expenses covered and baby emergency fund ($1000)
Hit the employer match in your retirement fund
Pay off high-interest debt (credit cards, car loans, loans with rates above what an average investment would historically return (7-10%), etc.)
Full emergency fund (3-6 months expenses saved)
Roth IRA and HSA contributions
Max-out retirement contributions
Hyper-accumulation of wealth (save beyond what is possible in tax advantage accounts - up to 20% of your annual income)
Pre-paid future expenses (wedding, children’s college fund, investment property down-payment, business ventures, etc.)
Low-interest debt payoff (mortgage, etc.)
Pay debt first, invest after (Method 2)
Starter Emergency Fund ($1000)
Pay off all high-interest debt (credit cards, car loans, loans with rates above what an average investment would historically return (7-10%), etc.)
Full emergency fund (3-6 months expenses saved)
Invest 15% of household income into retirement funds (educate yourself and figure out the best distribution. ex: Match->Roth->Traditional)
Save for children’s college fund
Pay off mortgage early
Build wealth and donate
Method 1 - This is the “Money Guy Show” Financial Order of Operations methodology. This method assumes you already have a level of financial responsibility and you have some debt, but not significant debt.
Method 2 - This is the “Ramsey” 7 Baby Steps methodology. This method assumes you likely have significant debt, and paying it off will unlock the opportunity to start generating real and significant wealth. If you struggle to curb your spending or be financially responsible, this is the best method to leverage to change your relationship with money.
There are a ton of other methods out in the world. I encourage you to research as much as possible, but decide on a method and take action as soon as possible. I’ve also read a ton of great books on the psychology behind personal finance, and how to effectively leverage your money.
Protecting the wealth you’ve accumulated
So, you've diligently built up your wealth, paying down debts, accumulating reserves, and planning for your future financial security. All of that hard work is admirable, but it's crucial to ensure that your wealth remains safe and doesn't become vulnerable to unexpected threats. In this blog post, we'll explore both financial and cybersecurity methods to protect the wealth you've worked so hard to accumulate.
Financial Methods to Protect Accumulated Wealth:
Diversify Investments
Diversification is a fundamental principle in wealth management. It involves spreading your investments across various asset classes, such as stocks, bonds, real estate, and more. Diversifying your investments can help reduce overall risk and mitigate the impact of market fluctuations on your wealth.
Asset Allocation
Asset allocation is the practice of adjusting your investment portfolio (and contributions) based on your risk tolerance and financial goals. Regularly reviewing and rebalancing your investments ensures that your wealth stays aligned with your objectives and risk tolerance. It makes sure that you don’t automatically tip the scale or invest overweight in one asset class or fund if it’s no longer working in your favor.
Maintain an Emergency Fund
An emergency fund is your financial safety net. By keeping a separate savings account reserved for unexpected expenses, you can avoid dipping into your long-term investments during financial emergencies. This ensures that your wealth remains intact and continues to grow.
Ensure Adequate Insurance Coverage
Insurance is a critical aspect of protecting your wealth. Adequate coverage for health, property, life, and disability can safeguard you against unforeseen financial setbacks. Regularly review your insurance policies to ensure they meet your current needs.
Establish Comprehensive Estate Planning
Estate planning is essential for preserving your wealth and ensuring it is distributed according to your wishes. This involves creating a will, setting up trusts, and preparing power of attorney documents. Proper estate planning can prevent disputes and legal challenges that may jeopardize your wealth.
Strategic Tax Planning
Tax planning is an integral part of wealth protection. Explore tax-efficient investment strategies and utilize tax-advantaged accounts to minimize your tax liabilities while maximizing your wealth growth.
Seek Professional Advice
Consulting with financial advisors, estate planners, and tax professionals can provide invaluable insights and guidance. These experts can help you optimize your financial strategy to protect and grow your wealth effectively.
Cybersecurity Methods to Protect Accumulated Wealth:
Implement Strong Authentication
In the digital age, protecting your wealth also involves safeguarding your online accounts. Multi-factor authentication (MFA), with biometric authentication as the preferred option, adds an extra layer of security. It prevents unauthorized access even if someone manages to obtain your password.
Secure Your Passwords
For online accounts, if you must use passwords, use strong and unique passwords. Consider using a password manager to generate, store, and autofill complex passwords securely. This minimizes the risk of unauthorized access to your accounts.
Keep Software Updated
Regularly update your devices and software to patch vulnerabilities and protect against malware. Outdated software is a common target for cyberattacks.
Secure Your Wi-Fi Network
Ensure your Wi-Fi network is secure by using strong encryption like WPA3. Change default router passwords and disable remote access to your router to prevent unauthorized access.'
Exercise Email Security
Be vigilant against phishing emails by avoiding suspicious links and verifying email senders, especially when the topic relates to financial matters. Educate yourself on common cyber threats and phishing techniques.
Employ Firewall and Antivirus Software
Install reputable firewall and antivirus software on your devices and ensure they are regularly updated to defend against malware and other cyber threats.
Encrypt Sensitive Data
Use encryption tools or services to secure sensitive financial data and communications. Use Virtual Private Networks (VPNs) when navigating to sensitive sites, and messaging applications that support encryption for any discussion of your financial information. Encryption adds an extra layer of protection to your confidential information.
Maintain Regular Backups
Regularly back up important financial data to an external source or secure cloud storage. This ensures you have access to critical information even in the event of data loss or cyberattacks.
Safeguard Online Banking Practices
When conducting online banking, monitor your accounts regularly and set up transaction alerts. Once again, use secure, private networks to access online banking services to protect sensitive financial transactions.
Adjust Privacy Settings
Take control of your online presence by adjusting privacy settings on social media and other online platforms. Limiting exposure of personal information can reduce your vulnerability to cyber threats.
Protect Your Cryptocurrency Investments
If you invest in cryptocurrencies, prioritize cryptocurrency security. Use hardware wallets or secure software wallets with strong encryption. Implement advanced security features like multi-signature authentication and time-locked transactions. Keep backup copies of your wallet's recovery phrases or private keys in secure, offline locations.
Consider Digital Asset Management Services
For significant digital assets, such as digital art or NFTs, explore specialized digital asset management services that offer advanced security features and custody solutions.
Explore Penetration Testing and Cybersecurity Insurance
For those seeking an extra layer of protection, consider penetration testing and red teaming exercises to identify vulnerabilities in your digital infrastructure. Additionally, investigate cybersecurity insurance policies that can safeguard your wealth from financial losses due to cyberattacks.
By adopting these financial and cybersecurity practices, you can create a comprehensive strategy to protect the wealth you've worked hard to accumulate. Remember, wealth protection is an ongoing process, so regularly review and update your strategies to stay ahead of emerging risks and threats in the ever-evolving financial and digital landscape.
