5 Steps to Building Wealth in Illinois

Building wealth in Illinois requires smart planning. Whether you’re just starting out or looking to take your finances to the next level, a disciplined approach can help you grow your money and protect it against risk – including inflation, taxes, real estate values and job market fluctuations. So, if you’re wondering how to accumulate wealth in Illinois, we’ll show you what moves you can consider making now, and why having a personalized financial plan can make all the difference.

1. ELIMINATE HIGH-INTEREST DEBT IN ILLINOIS

You can’t build wealth if your savings are constantly drained by debt. Credit card debt is the most insidious, as it typically has a high interest rate that can trap you in a vicious cycle.

Illinois residents have a relatively high level of credit card use, and the high cost of living, especially in Chicago and suburbs like Kenilworth, Winnetka, Glencoe and Lake Forest, might encourage you to whip out the plastic more often than you should. All in all, credit card holders in Illinois had an average balance of $6,726 in 2024.

Focus on eliminating your credit card debt before you start investing. Here’s one popular strategy: If you have multiple cards, pay more on the one with the highest rate first; then when that’s paid off, move to the next highest and so on. Always pay at least the minimum on your lower interest cards.

On the other hand, auto, college and mortgage loans typically have much lower interest rates and in the case of mortgages can contribute to building home equity, so you should pay those according to schedule. Unless you already have your other debts covered and you have substantial cash reserves, don’t be tempted to pay off these types of debts early.

2. BUILD EMERGENCY CASH RESERVES FOR ILLINOIS LIVING COSTS

The amount you should keep in cash reserves depends on two factors – your monthly expenses and the stability of your income. So, consider:

• What are your mandatory monthly living expenses? The cost of living in Illinois falls in the mid-range of all states (with an average rent of $1891 and a home value of over $282k, according to Zillow), but your expenses may be more than others around the country.
• How stable is your income? For example, are layoffs possible? Are you a business owner with fluctuating income or rental income? The more stable your income, the lower your reserves can be.
• Do you have any large, one-time expenses coming up?

Generally, your reserves should be somewhere between three and 24 months’ worth of spending, depending on how stable your income is. Be thoughtful about where you keep your cash – make sure your choice matches your needs and you’re getting a good yield.

3. MAXIMIZE ILLINOIS RETIREMENT OPPORTUNITIES

After addressing your emergency fund, you can shift your focus to retirement planning. Your employer’s retirement plan is a great place to start. Many employers allow you to contribute to a 401k plan or 403b and offer a match on some of the money you save. If you can’t max out your contributions, try to contribute at least enough to earn your employer match (it’s free money, after all). Then, increase the amount every year until you reach the maximum. Make sure to operate within your comfort zone and make only pretax contributions.

If you’re married and one spouse does not have a retirement plan at work, consider investing in a spousal IRA as part of your financial planning. The self-employed have options too, so don’t forgo this valuable savings vehicle. The more money you save, the more money you can accumulate, which can bring you closer to financial freedom.

According to the Illinois Department of Commerce, the state has the most diversified economy in America and the nation’s fifth highest GDP. More than 30 Fortune 500 companies make Illinois home, including John Deere, McDonalds, AbbVie, Allstate and Walgreens. The University of Illinois Urbana-Champaign is also among the biggest employers in the state. If you work for a state university, you may have access to a defined benefit or pension plan, which gives you a guaranteed income stream in retirement. That guaranteed income can be a significant boost to your retirement security.

If you’re retiring in Illinois, here’s some additional good news: Illinois doesn’t tax Social Security payments at all. And if you’re lucky enough to have a government pension, those payments may also be state tax-exempt.

4. INVEST IN IRAS FOR TAX EFFICIENCY IN ILLINOIS

Illinois has a flat income tax rate of 4.95%. Capital gains, as part of your income, are taxed at the same flat rate. While this system has its benefits, you’ll still want to create tax strategies that help you get the most from your wealth.

One of the best ways to continue to lower taxes while also bulking up retirement savings is to invest in an IRA every year. Depending on your adjusted gross income, you and/or your spouse may still be eligible to contribute to a deductible IRA even after contributing the maximum to your company retirement plan. Deductible IRAs offer two major benefits: you get a tax deduction for the money you contribute; and any interest, dividends or capital gains that accumulate in the plan are also tax-deferred until withdrawal.

If you’re not eligible to invest in a deductible IRA or you’re in a low tax bracket (12% or less), you should consider a Roth IRA instead. In any case, look to avoid non-deductible IRAs, which do not entitle you to a tax deduction and require complex tax documentation.

Your advisor can provide financial guidance to help you determine your eligibility, compare options and decide which IRA may be best for you.

5. OPEN A TAXABLE INVESTMENT ACCOUNT TO INVEST BEYOND RETIREMENT

Once your tax-advantaged retirement plan contributions have been exhausted, build assets in an investment account and contribute to it monthly. Additionally, if your plan allows you to contribute after-tax dollars and it will not affect your current lifestyle, consider adding additional after-tax dollars to your 401k plan and converting those dollars to a Roth when permitted.

Taxable accounts are just that – taxable – but they have no contribution limits and you can use the money whenever and for whatever you want. You can invest your money in stocks and bonds to have the best chance of growth. We recommend diversification as a key factor that can help you grow your money while controlling risk.

When you diversify your portfolio, you can choose to invest in industries that are most prominent in Illinois, like advanced manufacturing, agriculture and life sciences, along with others that make up the broad market, like technology, telecom and energy. You can and should consider investing outside the U.S.!

WHY LOCAL GUIDANCE MATTERS IN ILLINOIS

Illinois-based financial advisors understand your cost of living, tax rules and special opportunities. Working locally with Edelman Financial Engines can help ensure your strategy is tailored to your unique financial landscape. Find an Illinois-based advisor today.

COMMON WEALTH-BUILDING QUESTIONS FROM ILLINOIS RESIDENTS

Q: How can I build wealth in Illinois with high living costs?
A: Start by budgeting, reducing high-interest debt and investing in retirement accounts that offer tax advantages in Illinois.

Q: Are retirement accounts taxed differently in Illinois?
A: At the state level, Illinois doesn’t tax pension distributions or retirement plan income, including from IRAs, 401k plans and government retirement plans.

Q: What are the best investment options for Illinois residents?
A: Choose an allocation appropriate for your goals and risk tolerance. Consider one composed of both U.S. stocks and international stocks and that also has some exposure to bonds to help cushion against stock market declines (If you’re in a high tax bracket, consider tax-advantaged Illinois municipal bonds).

This may be achieved by investing in ETFs and mutual funds. Generally, you don’t want to have more than 5% in any one stock – including your own employer’s – because more than that could prevent you from achieving adequate diversification. In addition, being overconcentrated in one security can cause unnecessary volatility and risk with your retirement savings.

GET PERSONALIZED HELP BUILDING WEALTH IN ILLINOIS

Now that you know how planning and saving for your future can help you build wealth, it’s time for the next step. Edelman Financial Engines has advisors across Illinois who can help you create wealth-building strategies that fit your goals, risk tolerance and timeline. Find a location near you or schedule a free consultation.

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