Building wealth: Creating your own blueprint

Building our wealth. We all want to, but what are the steps to try and get there? Hi, I'm Ally Donnelly, and this is Fidelity's Money Unscripted. I want you to meet Diana Pauro. She owns a small design build firm and is ready to take her investing to the next level. You're on a path to building your wealth. I can't help but think you build houses. I have to be designing and planning every single house. So I also been designing and planning my path to wealth. We're also talking with Fidelity Pro Dani Braun on those steps to building wealth, from laying a strong financial foundation to investing strategies to try and make your money work harder. The things you do today, the steps you take today, give you the opportunity to make decisions on your own tomorrow. [MUSIC PLAYING] [POWER TOOLS WHIRRING] I feel incredibly passionate about what I do. My name is Diana Pauro. I'm the owner of Rebel Builders. I get to build community by building houses. I'm building my wealth to achieve work-life balance and to be able to impact my community. My biggest financial question is, what do I not know? What are my blind spots? And what should I be learning right now to understand what is my next step to build my dreams? When you think about everything you're building, how does it feel? I feel incredibly passionate about what I do. And I feel motivated every day to be better. I looked at your daily schedule, right, you are hustling it, girl, sun up to sun down. So what is it that motivates you? I am very much motivated by family and community. So I'm from Argentina. I grew up in a small, small town-- 300 people. I've been working in construction since I'm 15. And I opened Rebel Builders like six years ago. What do you want for your life? So what I want is being able to have enough items that I can build, systems that I can build, in a way that if I want to start a new nonprofit, I can do that. If I want to have time to travel, I can do that. I don't want to retire from life, right? I want to do life. So we were talking before about family. So I want a big family. I came from that. I love having siblings, and I would love my kids to have that. [BEEPING] [SPEAKING SPANISH] You had said that one day, perhaps, you'd want to retire to Argentina. Retirement feels so far away. But I have this fantasy of being old on my parent's vineyard in Argentina. I've seen that for my grandparents. They were living their life, just the best life. They were just playing cards, going on walks, drinking wine, just making marmalade. And it was such a beautiful thing to see. And I just feel like that's paradise. So, yeah, I would like to retire in Argentina. How do you see the role of money to help those things happen? To me, financial success is being able to have a fulfilling life without having to be worried about money, but also not losing yourself in the process. Diana laid her financial foundation by living intentionally below her means with strict budgeting and savings. Once that was on track, she slowly started to build her investments. This is my second house, and this is like my new investment. She buys and renovates homes to build a real estate portfolio-- [HAMMER BANGING] Because this is my house, I can do a lot of the work of myself. And that saves me a lot of money. She invests in a small business 401(k) for her and her team's retirement savings. I'm glad I have smart people on my team. And she's an investor in her parents' vineyard in Argentina. One thing she hasn't done is open a brokerage account to invest more broadly in the stock market. What's a challenge? What's holding you back? How big do you start? What do you need to start with that? Because sometimes it feels cumbersome if, OK, do I need to save a lot of money to get into the market? It's like, how much do you need? And what should I know to start making decisions? How do you see the value of that kind of investing in a brokerage account? Oh, I feel like that's definitely a thing that I have to be doing. I've decided that was a priority for me two years ago. I haven't jumped into it just because I knew that I had this investment properties to be done. But I think it's key for my financial independence to get into brokerage. What are you most excited about as you think about building your path to wealth? I feel like it's the sense of agency, that I can actually design my life, I can have control on how I want it to develop and how I want to be able to have this pour-over, this domino effect on everything around me. It feels so empowering. So I think that that's the feeling that makes me very excited. [EMOTIONAL MUSIC] It's so cool to see the way she's designing her life. Let me bring in Fidelity financial consultant Dani Braun. She's going to walk us through some blueprints to try and build our own path to wealth. Dani, thanks for being here. Thank you for having me. You hear Diana's story, and she's doing good things. She's got a successful business. She's invested in some real estate. She contributes to her 401(k). But she keeps asking that, "what else do I need to know" question, and I feel like that's a lot of us. It is. It's really common. So when I first meet with a client, what I like to do is really look at them almost like it's a piece of a puzzle. So take the pieces, dump them out on the desk, see what they have, and see what's missing. We're trying to build a picture, but first, we need to figure out where the gaps are. You said "gaps." What do you mean by gaps? By gaps, I mean missed opportunities. So, as an example, you've maxed out your 401(k). You think you're done, but there are other areas that you could save in a tax deferred manner. There are other ways to save for retirement. So those are the spots I'm looking for. OK. So I've got my puzzle pieces. I've got that big picture view. But what do I need to do if I'm ready to start putting a plan into action? Diana is a builder, so let's use a house analogy. OK. Let's start with a foundation. So let's take an assessment. What do you have? Cash, retirement accounts, investment accounts, in her case and in many real estate. And then what do you owe against those? So do you have a mortgage, student loans, credit card debt, car payments? So if we deduct those liabilities from our assets, that gives us our net worth. One of the big things is debt reduction. So the sooner we pay off those debts and the less money that's going out the door to pay those debts every month, the more power we have to save. So the more we save, the more time we have for that money to compound and for those investments to grow. OK. So I've got that piece. Is that all I need for a solid foundation? No. We need a blueprint. So now, we need some direction. We need to figure out what we're trying to accomplish and why. So who is the money for? What are we spending it on? And when do we actually need to use it? Every situation is going to be different. OK. I've got a solid foundation. I'm ready to build. What do I do first? Framing. So we want to build a frame. And the first step of that is going to be building that emergency fund. And what we're doing is we're setting aside three to six months cash to cover our essential expenses in the event of an emergency. Inevitably, something's going to come up, so that's going to give us the security to get started. So for some folks, we might recommend even a little bit more. It depends on the lifestyle you lead. I would suggest automating that. So have some money taken out of your paycheck and moved directly into your savings account. You're never going to miss it. OK, let's get some walls up now. What comes next? Retirement accounts. So the retirement account is really critical. Use your workplace account if you're not doing that already. So we're going to recommend saving 15% of your annual pay in that retirement plan. OK. But if you can't put 15% in it, put as much as you can. Definitely put enough to get the match from your employer, and then add that 1% a year-- or add as much as you can. It's flexible. If you need to dial it down, you can do that later. But it's really going to make a difference over time. We're putting up walls. We're installing floors. What else could I be doing to try and help protect the money I have? I would start by taking advantage of the workplace accounts that your employer has to offer. OK. So we're all familiar with the 401(k). Your employer may also offer a Roth 401(k), so that's something to explore. They may offer a health savings account, a flexible spending account. If you're self-employed or you have a side gig, you can look at solo 401(k). You can look at a self-employed pension, simple IRA. There are other options for you. Outside of workplace accounts, you've got your traditional IRA, your Roth. There are a lot of opportunities. Yeah, it's interesting because some people don't realize that a retirement account is an investment account. So they are investors. Right. But what if I'm someone like Diana and I want to take that investing to the next level? What does that look like? It looks like a brokerage account or an investment account. So for this analogy, that's the roof on the house. So outside of our retirement accounts, we can still invest. I know that can be intimidating for a lot of people because it's new, but it's really quite simple. So you can open a brokerage account, otherwise called a taxable account-- just simply means that you're putting after tax dollars into that account. And you can invest it any way you like: You can buy stocks. You can buy bonds. You can buy fixed income instruments. It's really up to you. And there's a lot of flexibility there. If you haven't done it before, there are no minimums. Invest as much or as little as you like, and add to it whenever you want. Add to it as you can. Again, the earlier you start, the more time you're going to have for that account to grow. There are always going to be risks associated with investments. This we know. But there's also risk associated with cash. So cash over time can lose its purchasing power. So if you've got extra cash today, you're wondering what to do with that bonus, that could be a great place to put it. But there are some tax implications that go along with this. Whereas a retirement account is going to be tax deferred, you're going to want to touch base with your tax accountant on an annual basis and make sure that you're saving in a manner that's suitable for your personal situation. Awesome. Anything else I should consider with a brokerage account? A couple of things. When you're trying to decide who to use or where to open a brokerage account, take a look at fees. What does the company charge to do it? Do they have minimums? If you're looking at mutual funds, what do those funds cost? They all come with different associated fees. Do your research. OK. Anything else? I would say when you're thinking about investing as well, if it's an area that's new to you, it can be really intimidating. So take some time. There are so many different research opportunities online, so many tools available. At Fidelity, there are so many different educational opportunities. If it's something that you're interested in, and you have the time to spend, and that's how you want to spend your time, by all means, take advantage of everything there is to offer. If you're someone that isn't interested in that direction but you know it's something you want to do, you can use something as simple as a target date fund. Those are funds that are on what's called a glide path. And that path simply, over the course of time, based on the date in that target date, becomes a little bit more conservative as it approaches that date. So you have a fully diversified fund that's completely hands off. So there are different ways that you can create a diversified portfolio without feeling like you have to invest a lot of your own time. OK. For Diana and a lot of people, that intimidation factor is a big thing. They think of the stock market as this like, ah, I don't know enough. I don't have enough. So you talked about the education and overcoming the intimidation factor. But then there's Diana's question and a lot of people's questions like, well, I don't know-- do I have enough to invest? So how much do you need to have to really get in there? So there are no minimums at Fidelity. You can invest as much as you like. You can also buy something called fractional shares now. So if there's something that you want to invest in, but the price point for that share is high, you can buy a part of a share. So there really is no barrier to entry anymore. Excellent. I feel like we've got a really solid house. We've got walls, we've got floors, we've got a roof, we've got a frame, we've got a foundation. If this house is anything like my house, it's a little bit needy. What do we have to do for upkeep and maintenance? So this is really important. So like anything that's important, your house, your health, your car, we have to do maintenance. So we want to make sure, at a minimum, we're doing an annual review. We want to make sure everything is up and running, that we are putting care where it needs to be done, that we're taking a look at our goals and making sure everything still aligns, because those are going to change. Just like your needs of your family are going to change, we might need to modify those investments to make sure that they're staying on track. Dani, this has been such a good conversation. If somebody's walking away from it and you want them to have some key takeaways, what would you want those to be? I would tell you to prioritize your savings. Remember that investing can be a path to wealth. Automate. Automate your savings. Automate your investments. Keep everything on autopilot. And then do your maintenance. Maintenance is going to be really critical to your success. Excellent. Dani Braun, thank you so much. Thanks for having me. For more resources to help you build your own path to wealth, check out our show notes or head to our website. It's Fidelity.com/MoneyUnscripted. And if the podcast is helping you, share the wealth and share us with someone you care about. We'll see you next time on Money Unscripted. It's your life. Get your money's worth. [MUSIC PLAYING] [DISCLOSURES] Investing involves risk, including risk of loss. Diversification and asset allocation do not ensure a profit or guarantee against loss. 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