Wealth Erosion and Why it's Important

By Alex Casella

A simple analogy is to think about a child who diligently built a tower of blocks. Proudly stacking them into a unique structure. Excited and accomplished to tell mom and dad, just as the older sibling comes along to knock them all down. The agony and tears that erupt in that moment. How hard the child worked to build their stunning success. The significance of those blocks and what they meant to that child. For it all to be taken away so suddenly.

Well, that’s wealth erosion for you in a nutshell.

Think about the hard work you’re putting into your career. The sweat equity, the tears and commitment to getting where you are, and want to go. One bad day, without proper planning, that can all go away.

We’re talking lawsuits, taxes, economic impacts, market volatility, injuries or illnesses that keep someone out of work, medical bills, unexpected vehicle repairs, structural damage to a home, god-for bid a premature death. These are all factors that can impede and erode wealth.

How do you avoid eroding wealth? Proper planning.

Adequate insurance coverages, legal planning, establishing appropriate funds for emergencies, strategic diversification against taxation and market volatility, and acting on the advice of a fiduciary who is looking out for your best interest.

In many cases, even when planning is started, it’s done in the wrong order. Many will start out focusing their efforts toward investing and retirement savings and overlook the unappealing topics no one wants to talk about.

Protecting yourself from wealth erosion is a critical step in establishing appropriate safety parameters that can help someone stay the financial course if, and when, a disaster occurs.

Have fun building your blocks and stay clear of the older sibling ready to knock them all down!