Why is it that less than 10% of families control about 80% of the world's net worth?
I got into the family wealth business because I was fascinated by how some families could accumulate great wealth while others never did.
Over the past 35 years, I've watched families start with nothing and build enough cash flow and capital to live comfortable, exciting, purposeful lives and leave enough for their heirs to build on if they want to.
What's amazing isthat barring really bad luck, just about any family can do it. It's not easy, but definitely doable.
So, how do families build wealth? They are aware of - and overcome - the six killers of family wealth: negative cash flow, bad investments, a vague life purpose, bad advice, excess taxes, and distractions and burnout.
That's it.
Family Wealth Killer 1: Negative Cash Flow
Spending more than we make is a non-starter for accumulating wealth. For most of us, saving money is boring and hard to keep up.
My uncle was a saver. Man, could he save – no extras, no vacations! The problem was, he couldn’t let it go. When it came time to put his capital to work, he’d freeze. He died with money, but his legacy is one of a cheap-skate.
But building capital to do something productive can be exciting! Working for what we’re passionate about is a liberating mindset. Our passion can override the temptations of immediate gratification. As a way of living, growing capital builds confidence.
The more we accumulate, the more freedom and possibilities we have, and what we do with our wealth becomes our legacy and reflects the way we lived our life.
Family Wealth Killer 2: Bad Investments
All investments look good the first time you see them…right?
I met a guy with millions of dollars. He could really accumulate capital, but he couldn’t pick a good investment if his life depended on it.
He would only see what he wanted to see and commit precious capital to things he couldn’t control with little possibility of producing a return worth the risks.
A good investment policy changed all that.
Sticking with our investment policy we always know how to deploy capital because we know what we're trying to accomplish.
The deeper we dig with due diligence, the more we understand an opportunity and how it lines up with our values and goals.
Picking winners is easier and more fun this way. Building capital is like building anything else—the better the quality of the parts and how they all fit together for us, the better it will perform.
Family Wealth Killer 3: Vague Purpose
Many people merely go through the motions. They feel a lack of meaning in their lives.
Stephen Covey talked about climbing the ladder to success only to find when we get to the top that it’s leaning against the wrong wall.
Who are we? And what do we want? Two simple questions. Yet how many of us take the time to think about them?
Identifying the people and things we really care about, and then committing to them, is not that hard. Well maybe the commitment part is.
But once we know, life gets a lot less complicated because we’re now on a mission. We’ve found our purpose and have resolved to do something deeper.
Knowing that we’re doing it on purpose and with purpose is energizing. It helps us stay on track, make better decisions, and brings us ever closer to where we want to go—actually living our legacy every day.
Family Wealth Killer 4: Taxes
Many people overpay their taxes, which erodes capital unnecessarily.
40 years ago a study was done on why some wealthy people paid more taxes than others. The results showed that those who paid less had actually planned it that way.
Tax avoidance planning is an effective legal tool for building capital.
The tax planning process may be tedious and time-consuming, but when it pays off, the rewards can be great.
Planning ahead to reduce taxes forces us to think and act in a way that naturally increases our capital. It’s not what we make that counts. It’s what we keep.
The opportunities for tax reduction within the law also introduce us to planning strategies for doing good that we otherwise might not have considered. Things like charitable contributions and showing our children how to be good citizens.
Family Wealth Killer 5: Bad Advice
We all turn to people we trust for advice, but does trusting them make them the most qualified?
A business owner I know asked his accountant and attorney to resolve an issue. He'd known each for years and trusted them explicitly.
Problem was, they couldn't agree. While they were arguing, he missed a deadline. It cost him thousands.
Advice from the people we trust is a good idea as long as they can deliver results and admit when they're in over their heads.
The quality of the advice we get and how well our experts work together can make a huge difference. The difference between uncertainty and confidence, success and failure, and building or wasting capital.
Trusting our advisors is important, but knowing whether or not they can deliver the results we need is crucial and there's nothing more powerful for building wealth than a well-orchestrated team.
Family Wealth Killer 6: Distractions & Burnout
Work-life balance sounds easy enough. We all know it's not.
We're either thinking, "There's not enough of me to go around," so we work long and hard in order to someday retire and enjoy life. Or we think, "Life's too short; I'll have plenty of time to work later."
Either way, we're in trouble. When we work too hard, eventually we become miserable and burn out.
When we play too hard, we might have some fun times and great experiences, but it's unsustainable.
Why not plan for both? Shoot for balance.
When we prioritize both, we have more peace, less stress, better free time, enough money, and more satisfying relationships.
It doesn't just happen though- it requires active intentionality. Make it a habit.
It's undeniable. Too much work or too many distractions -- either one can kill your goals.
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