More and more, the elite concept of being wealthy is becoming true for people who never thought they would be. One of the key contributors to that is the increase in real estate values in Canada. Couple that with the inter-generational transfer of wealth. Look at your net worth, you may be surprised.
Most wealthy people have ways of making their money last. And, after years of advising high net worth people, many of our clients have a few traits in common.
The vast majority of our clients are the wealthy next-door folks. They weren’t huge income earners, but just really disciplined savers, socking money away and accumulated over a million dollars when they’re ready to retire. In my years of experience working with such people, there are five approaches I commonly see that help wealthy people keep growing their money over time.
Stick to a financial life plan
Wealthy people who keep, and even build, their wealth over time always have a bigger picture financial life plan. For many of our clients, a financial life plan doesn’t just refer to how they’ll spend and save.
You need to know all the nuts and bolts about a family’s budgeting and expenses, what kind of insurance they have, what their estate planning looks like in terms of their legal documents, and their goals for potentially leaving a legacy behind for either family members or charitable organizations. Often times, financial life planning also considers taxes, employer benefits, and investing plans.
Wealthy people get the right help with making this plan and know what steps they have to take today to stick to it.
They’re not worried
Most of the wealthy people we work with don’t have investment management on their minds. They’re not thinking about trying to time the market or making lots of cash on the next hot stock. We encourage clients to take a long view of investing.
We don’t try to outwit the markets. We just want to harness the power of the markets to give our investors the highest probability of success. Often times, simply buying shares and holding onto them for the long term creates the best chance of success.
For many of our wealthy clients, investing isn’t an active process. Its about patience. We know we’re not going to be right every year, or every three years, or even every five years. But we know that over time, we are giving our clients the highest probability of success.
Over-planned for retirement
For many people, retiring from full-time work means living on a smaller income and making sacrifices. But wealthy people stay wealthy in retirement with some careful planning.
Clients often over-plan for retirement. We use the life expectancy of age 96 for our clients, because we know there’s about a 25% chance that for a healthy 65-year-old couple, at least one of them will live to age 96.
By over-planning, wealthy people are able to maintain the same standard of living in retirement for longer. At the end of the day, the last thing we want is for you to run out of money.
Find ways to reduce taxes
With careful planning, wealthy people have learned to reduce how much they owe in taxes. They know how to take advantage of certain tax breaks and incentives and decrease the amount of taxes they owe both now and later in retirement. While taxes can be a complicated thing to understand, reducing taxes is part of their overall financial life plan, and it’s considered at every step, from where they invest to how they give gifts.
Paying less in taxes means keeping more in the long run. For people who have grown their wealth and slowly moved into higher tax brackets, reducing their total taxes is a critical way to maintain their wealth.
Incorporate charitable giving
Hand in hand with tax efficiency, wealthy people often include charitable giving in their financial life plans. Not only do most wealthy people feel an obligation to give back but there are a number of tax advantages as well.
These gifts could come in a number of forms. They could be monetary donations, but they could also be gifts of shares of stock, or distributions from a registered assets after a certain age.
Charitable contributions can help lower the total taxable income, which could in turn reduce income taxes and even health premiums in retirement. Donating has two purposes, and it can be beneficial in more ways than one.
The bottomline
The path to becoming wealthy is via a long-term financial life plan where you take advantage of all opportunities available to enhance your savings and reduce your taxes. We’ve just scratched the surface on this topic. Working with a Certified Financial Planner incorporates life and wealth goals and opportunities into your financial life plan. Sure, it sound easy, but those who think it is not possible to become wealthy will procrastinate and put it off. Starting with small steps and sticking with them can end up generating long term success. Yes, life can get in the way, but a proper plan anticipates obstacles and provides for paths around them. One certain, if you do nothing it will not happen. A positive and active approach ensures you are Keeping Life Current.
