5 Essential Financial Protocols for Wealth Building

Effectively managing personal finances is about more than just sticking to a budget (although that’s a fantastic first step). One of the best ways to get ahead, to begin your wealth building journey, is to implement financial protocols.

Protocols are guidelines that can be used to help you stay motivated, disciplined, and moving in the right direction. They may be there to help you reduce risk, remind you to preference long-term plans, or add consistency to your approach. Establishing financial protocols can lead to the development of healthier money habits, seamlessly integrating new practices into your daily routines.

Here are 5 financial protocols you can establish now:

1. Your Budget Protocol

A budget is the roadmap to your financial future. It’s where the rubber meets the road, where money is aligned with values and dedicated to furthering our financial priorities. Build wealth by using your budget to increase the gap between earning and spending. Leave room to create stability and security through saving and investing. Implementing this financial protocol will allow you to identify places where tweaking your current situation could lead to large gains.

Watch Your Cash Flow
Note where your money is coming from and where it’s going. Group your expenses into needs (ex: housing, utilities) and wants (ex: travel, fine dining).
Use Benchmarks and Best Practices
Two of the most simple and straightforward budgeting benchmarks are the 80/20 rule (spend 80%, save 20%) and the 50/30/20 rule (50% needs, 30% wants, 20% savings and investments).
Give Every Dollar a Job
Assign money as it comes in – to current obligations, future desires, or covering the next “unexpected” expense.
Review, Revise, and Reconcile
Review your budget regularly to check progress and ensure it still reflects your top priorities.
Revise your budget when financial circumstances change, or when things aren’t working how you’d hoped (I’ve changed the way I categorize my spending at least 20 times).
Periodically reconcile – compare the numbers on your budget to the amount showing in your bank account.

You’re literally writing a to-do list for your money… write down all of the places your money needs to go… ask yourself: What do I need this money to do before I get paid again?
Jesse Mecham
You Need a Budget: The Proven System for Breaking the Paycheck-to-Paycheck Cycle, Getting Out of Debt, and Living the Life You Want

2. Your Debt Management Protocol

Left unchecked, debt can spiral out of control and undermine financial progress. If you owe money, implement a debt repayment strategy.

Options include:

Start Small
Pay off the debt with the lowest overall balance due, to build momentum.
Tackling the Highest Rate
Focus on reducing loss of funds to interest.
Increase Your Cash Flow
Target the debt with the highest monthly payment.

There are times when it’s okay to take on debt but, for the most part, it should be avoided. To ensure you don’t end up back in the same predicament, only charge what you can afford to pay off each month. Spend your money as, or after, it is earned.

3. Your Saving Protocol

If you want to build wealth and reach your long-term financial goals, you’ll want a protocol designed to help you save. Financial protocols help you stay disciplined and determined.

If saving is a high priority, pay yourself first! Set aside a percentage of your money, to save and invest, the second it hits your account.

To accomplish this:

Automate
If your money comes in predictable amounts on specific dates, consider scheduling automatic transfers to savings, retirement, and brokerage accounts.
Move it Yourself
For those with fluctuating income and earnings, set money aside for your future self as soon as you have it.
Use Percentages
You may want to use a flat percentage, 20% of everything, to keep it simple. Alternatively, have a percentage protocol based on where money is coming from. My husband and I save at least 20% of regular income, 50% of bonuses, and 80% of unexpected influxes (ex: refunds)
Ramp Up Savings Over Time
Take raises and “extra” earnings as an opportunity to increase your savings rate. Putting aside at least 50% of new money will avert lifestyle creep.

What To Save For

Emergencies
Ideally, emergency funds can cover 3-6 months of living expenses. This provides protection, in case you’re unable to work or experience some other massive financial setback.
Unexpected Expenses
Eventually, you’ll want to have a drawdown account to cover repair and replacement, upgrading, etc. Pay for these things without dipping into your emergency fund, reserving it for extreme and dire situations. Remember, these costs are only unexpected with respect to timing. We know they will occur… eventually.
Wishes and Wants
Shift your mindset from “buy now, pay later”, to “save now, buy later”. Save up for large ticket items, to avoid debt. Since you’ll always have desires, I recommend funding your long-term investments first…
Financial Independence
To become financially free, you’ll need to stop depending on earned income. This is achieved through investment.

4. Your Investment Protocol

Investing is a critical financial protocol for growing your wealth over long periods of time. By putting money to work in various assets, you can achieve financial freedom. Here’s how to implement an investment protocol:

Set Clear Objectives
Determine exactly why you’re investing (ex: financial independence, to buy a house). What will this money be used for and when will it be needed. Be sure you’re investing in line with your time horizon.
Diversify
Don’t put all your eggs in one basket! To mitigate risk, invest in more than one type of asset (ex: stocks and REITs) or in index-based or other ETFs (Exchange Traded Funds), which contain groups of securities.
Dollar-Cost Averaging
Contribute a fixed amount of money at regular intervals (monthly or quarterly), rather than based on the perception of whether the market is at a high or low point.

5. Your Legacy Protocol

There are two financial protocols absolutely everyone should have, a budgeting protocol and a legacy protocol. We all have money that needs to be managed, and we will all die someday. Preparation is important (regardless of your level of wealth), since end of life planning includes medical instructions, guidelines for how to handle your remains, guardian assignments, and the distribution of items of sentimental value.

Estate planning is about more than what you hope to leave behind. It’s about reducing the burden on loved ones, so that they’re not overwhelmed because they were left with a bureaucratic nightmare or are unsure of your wishes, all while trying to cope with the loss.

Draw up Documents
Estate documents include Advanced Medical Directives, Powers of Attorney, Last Will and Testament, and/or Trusts.
Select Guardians
Who will take care of your children?
Who will care for your pets?
Assign Beneficiaries
Ensure your investment accounts and insurance policies list beneficiaries, and that you update them after a birth, death, or divorce.
Reduce Taxes
When your portfolio becomes substantial enough, you’ll want to consider ways to minimize what will be owed in taxes at the end of your life. This may involve a plan to gift prior to death or setting up a trust.

Don’t Leave Finance to Chance!

Wealth creation isn’t the result of luck, and there’s no magic formula. It comes from a shift in mindset, consistency over a long period of time, and designing solid financial protocols.

By creating guidelines for budgeting, saving, and investing, you’ll have a strong foundation in place for financial success. Design a plan based on your goals and priorities, review and revise it as needed along the way, and you’ll find yourself on a direct path toward your ideal financial future!

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