Practical advice for wealth creation
TAKE A LONG, HARD LOOK AT YOUR FINANCES
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