Prac­ti­cal ad­vice for wealth cre­ation

TAKE A LONG, HARD LOOK AT YOUR FI­NANCES

The Citizen (KZN) - - PERSONAL FINANCE -

For many, wealth cre­ation seems unattain­able. How­ever, it’s not im­pos­si­ble, what­ever your in­come level. Here are prac­ti­cal steps for aspir­ing wealth cre­ators: 1. The sooner you start the bet­ter. The sooner you start sav­ing, no mat­ter how lit­tle, the bet­ter the life you’ll have in your later years. The less time you have to save, the less cap­i­tal you’ll have at re­tire­ment, which af­fects your life­style once you stop work­ing – if you can af­ford to stop. 2. Don’t fol­low the masses. Wealthy peo­ple grow as­sets by in­vest­ing dif­fer­ently to the masses. They use a di­ver­si­fied ap­proach and don’t in­vest in only one as­set class. Wealth cre­ation re­quires un­der­stand­ing risk: when to take it and when to be cau­tious. Gen­er­at­ing mul­ti­ple in­come streams from busi­nesses and mak­ing wise de­ci­sions on where to in­vest those streams into a di­verse in­vest­ment port­fo­lio (e.g. prop­erty and mul­ti­ple fi­nan­cial in­stru­ments) will mit­i­gate risk and is a solid foun­da­tion for wealth cre­ation. 3. Work with smart peo­ple. The wealthy ap­point peo­ple they con­sider the smartest pro­fes­sion­als in their area of ex­per­tise, e.g. ac­coun­tants or fi­nan­cial ad­vis­ers who can think be­yond in­vest­ing, un­der­stand be­havioural fi­nance and fi­nan­cial mar­ket his­tory and are al­ways cur­rent with trends. 4. Be mind­ful of tax. Plan and struc­ture your fi­nan­cial af­fairs more tax ef­fi­ciently by be­ing aware of tax li­a­bil­ity con­se­quences, es­pe­cially CGT and how losses can be car­ried for­ward and used to off­set fu­ture gains, and un­der­stand­ing how you can limit tax li­a­bil­i­ties us­ing cer­tain ben­e­fits of­fered by tax leg­is­la­tion. 5. Debt isn’t al­ways bad. Tak­ing ad­van­tage of lower in­ter­est rates, where the spread be­tween in­vest­ment re­turn and bor­row­ing cost is at­trac­tive, is how the wealthy take ad­van­tage to in­crease their as­sets. Re­spon­si­ble lever­ag­ing, us­ing the bank’s money to at­tain ap­pre­ci­at­ing as­sets (e.g. prop­erty, busi­ness ac­qui­si­tion) in a low-in­ter­est rate en­vi­ron­ment where the yield’s at­trac­tive, is good debt. 6. Cre­ate a fi­nan­cial plan. Have a clearly laid out fi­nan­cial plan, lis- ting as­sets and li­a­bil­i­ties, fu­ture ex­pected out­lays and goals. Hav­ing an ad­vi­sor who asks the right ques­tions and mon­i­tors and re­views your port­fo­lio and reg­u­larly pro­vides up­dates is a ne­ces­sity. 7. Struc­ture as­set own­er­ship. This be­comes par­tic­u­larly im­por­tant for wealthy fam­i­lies. Is there a need for a trust? What are its ben­e­fits? Do I have a valid will? When last was it up­dated? Is it rel­e­vant? Are all my ben­e­fi­cia­ries pro­vided for ad­e­quately? What are the es­tate duty im­pli­ca­tions? 8. Pre­pare your chil­dren. Many wealthy clients worry about what their chil­dren will do with in­her­ited wealth. En­cour­age chil­dren to start sav­ing and en­gag­ing with an ad­viser as early as pos­si­ble, to en­sure they’re be­ing ed­u­cated to start cre­at­ing their own wealth and en­sure any legacy left to them is man­aged re­spon­si­bly.

Brian Butchart is with Bren­thurst Wealth

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