You are working hard and planning well to get control of your financial lives so that you can make a better life for your children and family. But what happens when you ‘make it’. here doesn’t seem to be a manual on living wealthy lives, but there are ways to prepare yourself and your family for generational wealth. Below is a summary version of six action steps you can take now to prepare for the time when you are wealthy.
Step One: Develop healthy wealth habits
a) Understand what wealth actually means to you. Once you understand your wealth goals, check in with your spouse and your family. Discussing and agreeing on wealth goals may keep your entire family pulling together to meet the goals.
b) Chose the right occupation. Find a method to generate income that is beneficial and efficient. Research done for the book The Millionaire Next Door by Thomas J. Stanley, Ph.D. And William D. Danko, Ph.D. indicated that 2/3 of the millionaires in their study were self-employed.
c) Don’t sacrifice financial independence for status – don’t get caught up in the game of trying to have the most toys, the best house or the most respected profession. In their study, Stanley and Danko noted that most of the millionaires did not chose high status occupations which required expenditure of money on luxury cars, big homes and other status symbols to maintain their professional image.
d) Save more than you spend. Even if ‘wealth’ doesn’t equate to money for you, living within your means can bring security and contentment into your life.
Step Two: Build your wealth management skills
a) Master the basics of personal finance. Learn how to budget, balance the checkbook, use installment and revolving credit, keep good records, understand cash flow and the benefits of delayed gratification.
b) Build your skills and your reputation with your networks. Take advantage of learning opportunities and work challenges to build your ability to communicate successfully, manage other people, and learn how to recognize and deal with negotiations and politics. Pick and use a mentor, be a mentor.
c) Learn about investing. Explore investment basics, then start investing disposable income in very safe investments. Go on to learn and potentially apply more advanced investment types. Get passive income and use it for more investments.
d) Try out entrepreneurship. Most of us have an idea of a need we could fill. Explore your entrepreneurial spirit. Maybe you are the next Bill Gates.
f) Expand your horizon – learn how the super rich people operate. Knowing what they know may help you think of ways to operate that you hadn’t yet considered.
Step Three: Protect you and yours
a) Protect your assets. Divorce, a big wealth destroyer, occurs in about half of the marriages in America. Consider a pre or post nuptial agreement to protect assets. Protect your assets against financial institution failure by checking what is covered (by FDIC, SIPC, etc) before you invest and making sure you can stand the loss if there is not adequate coverage.
b) Protect your job and income. Keep and advance your job by working hard at the right tasks, filling the needs of your company or business, and learning new skills.
c) Protect against financial loss from things insurance can cover. Evaluate your risk of fire, theft, early death, bad health, liability from others and then learn about and purchase appropriate types of insurance to cover your risks.
d) Protect against your own incapacity. Make a will so you can say who should care for your children. Consider buying disability insurance. Think about writing financial and health care powers of attorney.
e) Protect your physical safety. Train your family to know how to handle emergencies. Practice the procedures with your family.
f) Protect your online privacy. Guard against identity theft by NOT sharing all your personal information online or throwing it away in the trash. Guard against physical harm or theft by NOT announcing online when you will be away from your home.
Step Four: Beware of wealth destroyers
a) Keep a positive cash flow – don’t spend more than you earn. Use credit wisely. Revolving credit is great if you pay off your balance each month! Negative cash flow ruins wealth.
b) Anticipate and try to avoid catastrophic events. Don’t buy that home on the flood plain and refuse to get flood insurance. Know your family health history and take steps to avoid duplicating the bad incidents in your family’s past (such as heart attacks).
c) Reduce the likelihood of severe family disagreements over wealth. Work with your spouse, children and extended family to define a common family legacy and vision. Then establish open lines of communication to keep everyone headed the same way. Family disagreements pave the way for divorce, divergences in spending habits and squabbling over your estate – all wealth destroyers.
d) Manage financial assets properly. Lack of investing knowledge, bad record keeping, inappropriate risk taking, improper asset allocations and paying too much in management fees can all be wealth destroyers.
e) Be effective when transferring wealth. Set up appropriate estate plans, including tax reduction planning and heir preparation considerations (to make sure they can handle the wealth). Paying extra taxes, paying legal and court fees for probate and letting your heirs loose with their inheritance can all be wealth destroyers.
Step Five: Build and nurture relationships
Build relationships with your spouse, your children, your closest advisors, professionals that assist you and institutions that serve you.
Building these relationships now – as you prepare for wealth –lets you test them against time and experiences. In the case of your family, building the relationships now allows you to guide, teach and learn from your tribe.
Step Six: Anticipate and avoid negative wealth impacts
What does it look and feel like to have wealth? What can you do now to avoid the negative aspects?
Wealthy people have reported negative impacts to:
- Self worth – don’t spend your life working towards a goal that won’t matter when you obtain it.
- Relationships – surround yourself with people you trust, people that have a relationship with you because you are you, not because you have wealth.
- Complexity – the more money and things that you have, the more time and money it takes to deal with them.
- Raising grounded children – actions you take now can help your children to develop their own drive, grow their self-worth, handle peer relationship problems or opportunities and help them to learn how to walk in step with the family wealth vision and contribute to it.
- Knowing when enough is enough. Refusing to try to keep up with what everyone else has will ultimately give you greater peace.
- Sense of security – with wealth may come risks to your physical and psychological security. Figure out how to avoid or mitigate those risks now for more security later.
To see all the detail behind this summary of the action items, visit: http://www.familymoneyvalues.com/index.php/prepare-for-wealth
- The Millionaire Next Door – The Surprising Secrets of America’s Wealthy by Thomas J. Stanley, Ph.D. And William D. Danko, Ph. D. copyright 1996 published by Long Street Press, Inc.
- E. Jane Dickson, “Nothing but Joy”, Readers Digest, October 2012, p142 – 146
- Robert Frank, Richistan, A Journey Through the American Wealth Boom and the Lives of the New Rich, copyright 2007, published by Crown Publishers, a division of Random House, Inc., New York
- Eileen Gallo, PH.D. And Jon Gallo, J.D., Silver Spoon Kids How Successful Parents Raise Responsible Children, copyright 2002, published by Contemporary Books, a Division of McGraw-Hill.
- Thaywer Cheatham Willis, Navigating the Dark Side of Wealth A Life Guide for Inheritors, copyright 2003, published by New Concord Press
- Making the Most of Your Money by Jane Bryant Quinn, copyright 1997 published by Simon and Schuster
- Power of Attorney Handbook 6th edition by Edward A. Haman Attorney at law, copy right 2006, Published by Sphinx Publishing Naperville Ill
Quicken WillMaker Plus – Estate Planning Essentials, published by NOLO