7 Secrets of Wealth Management You Need to Know

What’s the secret to successful wealth management? I don’t pretend to have all the answers, but it’s a subject I discuss at length in my latest book, Wealth and Families: Lessons from My Life Journey. Here, I share a set of seven principles that reflect my overall philosophy and offer some core practices for effectively managing wealth.

1. Wealth is a responsibility

First and foremost, you are responsible for yourself. If that sounds selfish, it’s not. You don’t want to be a burden on others. The best gift you can give your children is to be financially secure for retirement, according to one family wealth advisor I’ve discussed the matter with.

From there, it’s about who else you are financially responsible for and when and how. Who and what do you care about? For me, the answer is community, which I see as a series of concentric circles with family at the core, then the people who have helped me, and then local and broader communities.

2. Wealth is an instrument of choice

Wealth means different things to different people. I see it as a storehouse of value and future possibilities. Wealth can buy you flexibility in making educational, career and life decisions.

At any point in time, you have a range of possibilities before you. Whatever choice you make will close off some options, but also may open up some unforeseen ones. You may not end up exactly where you imagined you would be, but you likely will be quite satisfied or even pleasantly surprised.

3. Good choices require good goals

At their most expansive, goals are a vision for your future. They can provide a framework for making choices but are hard to set because life consists of a number of interacting domains: career, family, community and self. Trade-offs are required—many people talk of balance, but it’s more like juggling. Think of the parts of life as the balls you’re juggling. Which balls are crystal and will shatter if dropped? Which ones are rubber and will bounce, hopefully to be caught on the rebound? Relationships are more likely to be the crystal balls; financial ambitions will probably bounce.

4. It’s a three-legged stool

Goals are one leg of what I think of as a three-legged stool for growing, preserving and transferring wealth; the other two are structure and people. Depending on your goals, you may choose to structure your assets in a variety of ways. Options include cash, stock, property, pensions, 401Ks, life insurance, trusts, private foundations, holding structures (e.g., limited partnership) and more. Each comes in many flavors, with many people eager to “help.”

Let’s take trusts as an example. For the trustor, the basic questions are: Who do I want to get what? When? How much am I willing to pay in taxes? Answering those questions can get complicated pretty quickly, however.

There are many different types of trusts with many different names depending on their purpose and characteristics. The complexity is compounded by the fact that rules vary by state. Then, even for a simple trust, another hard question: Who to name as trustees and how much power to give them?

I prefer to ask friends whose judgment I respect to serve as trustees. I have set up one of my sons as administrative trustee and also have established a group of overseers whose sole power is to fire a trustee and hire a new one should something be amiss.

5. Scorecards matter

How will you measure your financial success? Many people focus on net income. I think that is just plain wrong because it says nothing about expenses and longevity. Margin (i.e., expenses/revenues) is a more useful metric because it lets you know whether you are overspending. Net worth is even better, taking into account the balance sheet effects of asset appreciation and depreciation, debt financing of purchases, and after tax cash flow. I regularly track personal and household net worth.

Total wealth—for the family—is the most meaningful metric for me. It doesn’t aim to capture every family member’s total assets, but it does include what I consider “created” assets—those assets transferred from my wife, Fredi, and me to others (e.g. trusts, housing purchases, charities).

6. Enough is enough

I tend to think of money in quantum terms with different stages of needs and wants. In the earliest stages, it’s about having enough food to eat, a roof over your head and schooling for your children. In later stages, as assets accumulate, you buy a home and can afford increasingly bigger toys and treats.

Now the big question: How much is enough?

It partly depends on where you start, but it gets harder as you move through the stages because you get used to being comfortable. Comparing yourself with others is usually unhelpful. The most important standard is an internal one. You have to decide for yourself how much is enough and what to do when you’ve attained that goal.

7. Fail to plan, and you plan to fail

That adage is attributed to both Winston Churchill and Benjamin Franklin. Dwight D. Eisenhower added: “Plans are nothing; planning is everything.” I would agree that planning really is more about the process than the plan.

Will I be able to do what I want over a one-, three- or five-year period? What time frame should I use? Am I spending too much and saving too little? Who might I need to help? Who do I need to help me? What will I do if (when, really) my needs or circumstances change?

Planning helps you answer those questions. It requires long-term thinking, tempered with tactical responsiveness to the real world. You have to be realistic about where you are as well. You need a grasp of your financial realities—what you have, what you spend and what you earn.

For more information on Wealth and Families, visit its website or purchase the book on Amazon

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