How Can We Create Enough Wealth to Get Through to D-Day?
The kind of discussions that we are having in the world right now are about how to create just enough wealth to get us through to D-day.
“If I do all the right things, if I invest in the right things and earn enough money, maybe one day I’ll be able to take my foot off the gas and stop worrying about money and start enjoying life.”
In my opinion, this paradigm is sold to the masses by governments, banks – the wealth creation world in general. And they keep people thinking within conventional frameworks.
They keep the money wheels spinning so that all of the layers of middlemen of people can benefit from that. They talk a lot about that in a book called The Origins of Money.
And really, the community and the change that I’m trying to create with this podcast is partly about challenging ourselves to ask better quality questions.
With access to a different set of investments by challenging the timeline to creating financial freedom, there’s very little question in my mind that it’s absolutely available to everyone to shorten their timeline to financial freedom, decades before the average Joe.
And when I say that, what I mean is, we will all have enough if we put our head into this game.
So if that’s true, then the questions that we need to start asking ourselves are not about whether we will have enough, but how can we actually use that wealth to influence and change the world?
Now, that definitely might seem like a lofty idea. But think about whose lives you’d like to influence and make easier. Are there causes that you care about? Are there people in your tribe who maybe don’t have the same skills and attributes that you do that maybe need a bit more help?
So the overview that I want to start with is, it doesn’t matter whether you have children or not, or whether you say you care about intergenerational wealth or not. I think the context of having wealth that endures is still absolutely critical.
I want to pre-frame everything that I’m about to say by stressing that money is only a single component of financial legacy. But if you’re not careful to structure your wealth in a way that it does actually perform over the long term, you are definitely at risk of eroding your capital base if the income stream doesn’t endure.
Delayed Gratification
I want to start today by identifying what I think the challenges are.
So first off, we’re getting really bad at this idea of delayed gratification. We live in a world of wanting everything now: credit is readily available before you even turn 18, and you can start to tap into some of those schemes.
The world is full of, I’m going to say, “entitled” people lovingly, but they just don’t understand how to build or look after wealth. So regardless of how great your business is, no matter how much of a cash cow it is, it’s highly unlikely that most of us have kids that will step in to run them.
And stewardship is a forgotten art. It’s not talked about in many people’s homes. When I talk about stewardship, I’m talking about your ability to look after and care for money. So the ultimate cost of that is that kids end up with no real motivation to create their own path.
Lack of Wisdom to Building Wealth that Endures
The next issue is that the pathway to building wealth that most of us think we know about, is simply to buy as many properties as we can and slowly ratchet up our net worth, use lending, buy a property, hope that it goes up over time.
The challenge, of course, is that as soon as those assets get passed down, the recipients often feel that the only way to improve their own financial situation is to sell those assets down.
It’s hard to work out how to build wealth that will endure rather than peter out. And you certainly aren’t trying to build this wealth only to have it liquidated and sold off down the line.
Even if you created a massive asset base, let’s say you could get to $100 million tomorrow, but the incoming team or the recipients don’t know what to do with it, it can be lost in a few short years.
So that lack of wisdom to continue growing that wealth is really tough. And there is a reluctant acceptance that life is complex, now more than ever. We wonder whether recipients of our wealth will even have the inclination, the thinking and the wisdom to keep those investments going.
I think what a lot of wealthier people are starting to worry about is that. We’ve spent so much of our lives building that wealth and wanting to have an impact that it will only disintegrate when we’re not around anymore.
Natixis US Investor Survey Findings
Now, let me tell you what I think the alternative to all of that is.
If we get this right, if we can create a new paradigm for ourselves, we can put guardrails in place so that recipients of wealth actually understand that, regardless of their personal spending views, they have rules which prevent them from getting out of balance.
Regardless of the size of the inheritance that’s left behind, recipients should at least understand how to springboard their ambitions rather than using it as a crutch.
Regardless of how much common sense, intellect or natural interest your recipients have in wealth creation and money, they’ll at least have a semblance of guidance from multiple sources.
Ultimately, what we’re all looking for is to know that the wealth that we’ve built and the investment into education will result in some kind of robust wealth that will endure into the future.
Let’s make this super practical. The first thing I wanted to share with you was a study done by Natixis US investor survey. They went out and interviewed a very large number of under 35 year olds. And what was really interesting is that 68% of young people expect to get an inheritance.
The flip side to that is they interviewed people over the age of 65, and allegedly, only 40% of parents actually plan to leave an inheritance. So obviously, there’s a discrepancy there.
A lot of millennials are saying they plan to quit working before the age of 59, which is, on average, a full six years earlier than baby boomers who expect to retire at 65.
And so part of the strategy that a lot of people reported was, “I hope to get an inheritance.”
I think the real insight here is that even if you do all the right things, no amount of family talk is going to guarantee that recipients won’t lose it anyway.
There’s a fellow by the name of Tony Manville, who was a very wealthy heir to an asbestos business empire who ended up going through 13 marriages and lost millions and millions of dollars. People thought there was no way that that could happen. But just a series of poor personal decisions killed his fortune.
Stacking the Odds in Your Favour
It’s also important to understand that lots of people have opinions about this sort of stuff, but nothing is for certain. And the only thing that you can do with all of this is stack the odds in your favour.
So from my perspective, after studying intergenerational wealth, financial legacy and family office for years and years now, it’s abundantly clear that there are plenty of arguments out there for how you should develop your estate and manage financial legacy. But it’s all just opinion.
So my goal today is to share with you some insights that you may not have heard before, and help you formulate what you might do with your own financial legacy.
Attitude Differences Between ‘The New Rich’ Vs ‘Old Money’
The first thing I want to flag is that there are huge differences between the attitude of the ‘new rich,’ meaning people like us who are self-made, who didn’t get any money handed down to us, versus ‘old money,’ where maybe there’s been several generations of wealth inheritance.
There was a study done by Fortune of 30 multimillionaires, and of those 30, six of them said that their children would be much better off with only minimal inheritances.
15 out of those 30, at least half, plan to leave as much to charity as they did to their children. And 12 comparable old money estates, only one of them gave away as much.
So I think the insight of this survey is that old money tends to want to keep it in the family, whereas with new money, because they’ve had to work to create that wealth, there’s an inherent recognition that it’s really important to try and impart some of that wisdom from a life lesson perspective.
Let me give you some examples.
Case Study: Mark Zuckerberg
When Mark Zuckerberg had his first child in 2015, he was worth in excess of I’m going to say 70 billion, but that number keeps moving.
Him and his wife, Priscilla, made a really interesting announcement. They said they don’t plan to leave their billions at all to their children.
Instead, they founded the Chan Zuckerberg Initiative. And their plan is that they’re going to give 99% of their Facebook shares, which is probably in excess of $40 billion, to advancing that mission.
Case Study: Bill Gates
Bill Gates is very similar. They’re giving their kids a minuscule portion of their estimated, I’m going to say, 90 billion plus fortune, and Bill Gates has been quoted as saying they’ve got to find their own way.
The truth is, even though a tiny fraction of their wealth will be enough to put each of their children in amongst the wealthiest individuals in the world, Bill Gates believes it will actually compel them to rely on themselves. So it’s not in their favour to have them inherit huge sums of money and that it distorts what they might do and distorts them from creating their own paths.
I know that they’re separated now, but they planned to put the majority of their fortune towards charitable causes, including their own foundation, which is aimed at eradicating disease and poverty. And they’re going to do that along with fellow billionaire Warren Buffett.
So, they’ve created what they’re calling a giving pledge, and what they’re trying to encourage is more of the super rich people to leave the majority of their wealth to philanthropic causes.
Case Study: Chuck Feeney
Chuck Feeney was the co-founder of the duty-free shoppers group. He’s probably around 88, and I’m going to say he’s technically not a billionaire anymore.
Over the course of his life, he has been very quietly dedicating the donation of his entire fortune to charitable causes.
I think he was once worth about $8 billion. He’s down to allegedly his last $2 million, which is .001% of the amount that he’s given away.
Business Insider reported that his children won’t see even $1 from their inheritance, but they’re super understanding about their father’s goodwill.
And one of their children actually said that it is eccentric, but that he sheltered them from being people who would have treated them differently had they had the money. I guess her claim was that it made them normal people.
Case Study: Warren Buffett
I always like to refer to Warren Buffett. He plans, at the point that I’ve put this together, allegedly to leave each of his three children $2 billion, which is nowhere near the full scope of his 70-80 billion fortune.
He’s quoted as saying he wants to leave his kids enough money so that they feel they could do anything that not so much that they do nothing.
I’ve read an article where his daughter was quoted as talking about slight frustration that Warren Buffett doesn’t believe in handouts, and so she wasn’t even able to go to him to ask for support to renovate the kitchen. His expectation is that in your life you need to manage your finances on your own. Not sure how true that is, but it makes for a great story anyway.
He has pretty much committed to donating more than 99% to charity.
Case Study: Andrew Lloyd Webber
Best known for his hit musicals Phantom of the Opera and Cats, Andrew Lloyd Webber is reportedly worth over a billion dollars. He’s said his five children won’t be getting rich off his success.
So the list goes on and on and on.
Why Shouldn’t Parents Leave an Inheritance Behind?
So the question is, why shouldn’t parents leave it to their children?
What usually troubles successful business owners and executives is that the large inheritance will encourage their kids to do nothing useful with their lives.
This idea of “no pain, no gain” is a really interesting one to marinate on.
You may feel differently, but I think what a lot of parents feel is that they suffered and had to work really hard to create their wealth. So they don’t want their children to grow up experiencing that same pain.
Final Thoughts and Reflection
This episode is not so much about the tactics of what to do to create $1 that you earn today and have it be available in 100 years, but it’s more about the thinking that goes with it.
Where I want to leave you today is getting you to reflect with your family, with your partner, within your tribe, or even just by yourself over a cup of tea is, think about your view on the level of financial support of your family that matters. Is it full support? Is it no support? And looking forward, what is one thing you’re not sure about helping with?
One of the things I’m huge on inside of the Freedom Warrior Mastermind is getting people to develop what I call a family investment charter. What is your intention? What is your hope? What is your vision for your recipients for your descendants, in terms of what you’d love to see someone in 100 years doing with that money, thinking about that money, managing that money?
Then you can start to flesh out all the other elements of a family investment charter. Now, we don’t necessarily have time to go through those today, but I think this idea of a 100 year plan is fascinating and certainly one that for those people who are out of the gates with their investment portfolio, they recognise that they’re playing that next level of the game where they know they have enough.
And so the thoughts turn to structuring annuities, preservation, making sure that your capital isn’t eroded from things like taxes, inheritance – these are the sorts of considerations that are super, super important.
So anyway, guys, this is really just a taster of some topics that I’d like to go deeper on. But it is a starting point, to reflect on this idea of what you see happening with your wealth when you’re not around anymore.
If you’re a business owner feeling frustrated that despite doing everything right in the property investing playbook and you’re no closer to financial freedom, then head over to www.inkosiwealth.com to learn more about how you can use alternative investments to catapult your investing income and blend strategies to shave decades off your timeline to financial freedom.
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