7 Money Moves Once Your Net Worth Reaches $500K
Written by
G. Brian Davis
Edited by
Amen Oyiboke
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You’re halfway to becoming a millionaire! What do you do now?
Your needs change as your net worth grows, and what was “good enough” when you had a $100,000 net worth doesn’t necessarily cut it when your net worth reaches $500,000.
Start thinking about these money moves now that you’re halfway to joining the millionaire club.
Update Your Estate Plan
Maybe you have a will, maybe you don’t — but you definitely need one. And you need to update it every one or two years moving forward, as your assets and needs change.
“At a $500,000 net worth, estate planning should become a priority,”said Brian Colvert, CFP and CEO of Bonfire Financial. “That could be as simple as just updating beneficiaries and putting basic legal protections in place.”
If you die without an estate plan, you leave it up to probate courts to determine who raises your children and who gets your assets. At this net worth, you don’t necessarily have to hire an attorney, however. You can probably get away with creating a will using online platforms like LegalZoom or LawDepot.
As your estate grows and becomes more complex, you can always hire an attorney to draft something custom. But for now, just make sure you have an estate plan and you keep it up to date.
Consider Life Insurance
Not everyone needs life insurance. But many families do, especially at this level of wealth.
Does your family rely on one primary breadwinner to put food on the table? If that breadwinner got hit by a bus tomorrow, would your family be able to live on the surviving family members’ income alone?
If not, consider buying life insurance.
Speak With a Financial Planner
At a half-million-dollar net worth, you probably don’t need to hire an investment advisor to manage your investments or put a financial planner on retainer.
Still, it marks a good milestone for paying a flat fee to sit down with financial planning for an hour or two. “Your finances are getting more complex, and this is where a certified financial planner becomes invaluable,” added Colvert.
They can talk you through tax strategies, advanced budgeting techniques, and investment strategies like rebalancing and tax loss harvesting that you may not fully understand yet.
Start Rebalancing Your Portfolio
When you plan your investments, you want to come up with your ideal asset allocation. That means the percentage of your portfolio that should be invested in different asset classes.
For example, imagine you hold 80% of your portfolio in stocks and 20% in real estate investments. Of your stock portfolio, you aim for 70% U.S. stocks and 30% international stocks.
But those investments don’t just stay frozen in carbonite. Each one rises and falls along with the market. A year later, you may discover that your international stocks have outperformed your U.S. stocks and now make up 40% of your stock portfolio.
“With a $500,000 net worth, consider rebalancing your portfolio on a set schedule,” said Alissa Krasner Maizes, fiduciary financial advisor at Amplify My Wealth. “Your portfolio should reflect the current market, your risk tolerance, and time horizon for achieving your financial goals.”
Rebalancing helps you sell high and buy low. You periodically sell off investments that are overperforming and buy ones that are underperforming.
A financial advisor can help you do this, but you can also do it yourself. If you make new investments every month, just run the numbers on how much each portion of your investment portfolio makes up. If it’s overweighted in one area and light in another, just buy more of whatever’s light.
Get More Strategic With Tax Planning
The more you earn, the more Uncle Sam takes. Unless you get better at the tax planning game, that is.
Sief Khafagi, co-founder of real estate investment platform Techvestor, emphasizes tax planning at this level. “Once you cross the $500,000 threshold, optimizing your tax strategy becomes critical. Maximizing contributions to tax-advantaged accounts and offsetting gains with real estate depreciation can help you minimize your total effective tax rate,” said Khafagi.
Tax-advantaged accounts start with your IRA and workplace retirement account (if you have one), but they don’t have to end there. You can also look into using health savings accounts (HSA) as secondary retirement accounts. They come with the best tax benefits of any account, and you’ll certainly have no shortage of health-related expenses in retirement.
Khafagi touched on something worth exploring further: depreciation from real estate investments. You don’t have to become a landlord — you can invest passively in real estate syndications and still get the tax benefits from depreciation.
For your regular “taxable” brokerage accounts, consider tax-loss harvesting. It involves selling off stocks or other assets that have dropped in value since you bought them, then immediately re-buying similar stocks or funds. You get to take the loss on your tax return, but you didn’t change the makeup of your investment portfolio much.
Add Passive Income Streams
No one wants to stay dependent on their employer forever. At your net worth, you’re more than ready to start adding income streams from your investments.
Dr. Cameron Sepah works with wealthy clients to help them make better behavioral decisions around money. He reminds his clients that the more passive income they build, the less they have to rely on working.
“Passively derived real estate, private equity, or alternative investments help break your reliance on earned income,” said Sepah.
Common investments that generate passive income include high-yield dividend stocks and funds, rental properties, real estate syndications, private equity real estate funds and secured debt investments.
Start small and explore adding these or other income-producing investments to your portfolio.
Start Thinking About Buying Back Your Time
Most people trade their time for money. Eventually, you want to reach financial independence, where you can live entirely on passive income.
In the meantime, you can still start buying back your time.
“Consider the amount of time you spend on tasks that you can pay someone else to do,” said Michelle Taylor, financial advisor at GFG Solutions. “Allow yourself the time to focus your energies elsewhere.”
That could start small, by paying a neighbor’s kid to mow your lawn. Pay an accountant to prepare your taxes (and offer you tax planning advice). Work your way up to hiring someone to manage your calendar and your email inbox, so you simply spend 15 to 30 minutes a day checking in with them about urgent issues.
At a $500,000 net worth, you can start seeing the finish line. It may still look hazy in the distance, but you can start honing in on your independence plan to reach it. Keep your eye on the prize, and keep evolving your financial acumen to build wealth even faster.
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