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SENIOR ADVOCATE

By Liza Horvath

 

Developing a Wealth Habit

 

Absent an inheritance, most financially successful people get that way by practicing good spending, saving and investing habits. These behaviors may have been learned from parents, through formal education or by inadvertent attendance to the school of hard knocks. Education and experience can teach us not only about what works in the world of wealth accumulation but can also show us our personal strong suits. A successful entrepreneur who knows real estate well and became wealthy by investing in commercial buildings, for instance, is unlikely to invest in the stock and bond market. The entrepreneur likes real estate and he understands it. The opaque nature of stock market investing is unknown and therefore frightening to him and he will stay with what has worked for him.  

 

We can learn from the success of those who have “made it” and here are a few short lessons learned from studying the habits of the rich:

 

First, think before they marry: Before saying “I do,” smart, successful people discuss money and seek to understand the saving, spending and investing habits of their soon-to-be spouse. What does the partner expect in housing, transportation and vacations? Successful people marry someone likeminded when it comes to financial goals and the coupling usually involves a prenuptial agreement. If a mistake is made and a divorce ensues, the successful person not only engages the services of good lawyer but those of a financial and tax advisor, as well. Assets worth little today may have the potential, either through growth or preferential tax treatment, to be worth a great deal more in the future. When “splitting assets” in a divorce, you should be very clear on the present and future value of assets and a financial or tax advisor can help with valuation.

 

Getting the best results in a divorce also means putting everything in writing. Successful people know better than to rely on memory or promises – they set emotion aside and make sure all agreements are included in the final divorce decree.

 

Second, know the true cost of services: Successful people understand the true cost of the services they are getting and this clarity is arrived at before they sign on the dotted line. Fees for investment management, or instance, typically range from .20 percent per year of the assets the manager oversees to up to 2 percent. If a smart investor is only looking to do stock and bond investing, more are now building their portfolios with low cost exchange-traded funds. Online “robo advisor” services manage portfolios of funds for .25 percent per year or less. If a money manager also provides financial planning to help them reduce taxes, maximize retirement funds or efficiently meet the cost of a child’s college education, the successful person may find the fees for services acceptable. After all, fees are only an issue in the absence of value.

 

Lastly, teach your children about money: Finally, successful people seek to raise money-smart kids. Many “weave small financial lessons into everyday conversations,” says Jonathan Clements, columnist with The Wall Street Journal. Show children how to divvy up their allowance into three buckets – spend, save and tithe. This helps them experience from a young age the power of compounding interest in the “saved” funds and the beauty of giving the “tithe” funds.

 

Attention to details and establishing “wealth-minded” actions can make all the difference in your success. Do you have wealth habits?

Liza Horvath has over 30 years experience in the estate planning and trust fields and is the president of Monterey Trust Management, a financial and trust management company. This is not intended to be legal or tax advice. If you have a questions call (831)646-5262 or email liza@montereytrust.com

 


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