What can we learn from HNWIs?
(High Net Worth Individuals)
People who have at least £1mn in assets to invest.
HNWIs have either worked for it or have inherited it.
For these individuals, financial planning is extremely important…
(Now we’re not saying that it isn’t for those of us with less net worth than Liechtenstein. It’s just that the sheer volume of assets at the disposal of these individuals requires more meticulous and rigorous planning. Plus, if something goes awry, they probably have a good legal team too!)
It’s fascinating to hear them talk about money and surprising on some of the details they reveal. Richard Branson didn’t know the difference between net and gross profits until only recently.
Jeff Bezos’ wealth is largely in Amazon stock, which is contrary to what common sense investing tells you about putting all eggs in one basket.
And whilst we may not be in their realms of wealth, we can still learn from them. Here’s four money lessons we can use…
Have a plan
We’ve stressed the importance of having some sort of plan in place.
Once you’ve sat down and put pen to paper, write your start and end goals. Because you need to have a start to reach an end.
Muddling your way through life without a plan will only get you so far. A plan should include all details about your assets, liabilities, investments, and business plans for the future.
Having such a plan will provide you with a sense of security helping you to make effectively manage debt, profit, and retirement.
HNWs are also aware of the impact of big changes. That can be selling the family business, setting up a charity or going through a generational transition. All can impact can their family. So every time you go through big change, ask yourself: ‘Why am I doing this?’. This will also help you identify what your end goal is.
Considering the diverse nature of your financial life and it will change over time, it makes sense to get some sort of financial planning consultant who can do the job with you.
Don’t neglect retirement
A magical word. One that most of us think of as a far off time and place. A day when we’re older, and hopefully not working as hard (or indeed, at all!)
But most of us don’t think about what would happen if we are forced to retire early. This could be due to illness or redundancy, for example.
HNWs don’t just factor in age when retiring. They evaluate retirement based on factors in addition to age such as wealth, future commitments, family planning, sources of income, etc. So, it does not matter whether they retire in their late 20s or early 70s.
Retirement means you will have to ensure that your money keeps coming in to provide you with financial stability.
Start listing your expenses. Consider what your post-retirement lifestyle may look like (and don’t forget to factor in additional healthcare!).
Check your income sources regularly and adjust your risk appetite. Estimate the amount of expenditure and then make a plan of action.
Teach resilience at the School of Hard Knocks
Some HNWs have worked exceptionally hard to be where they are, sacrificing huge personal moments.
Your own financial journey may not be as epic, but you will had made countless sacrifices to ensure your survival. If you have a family, you’ll have gone the extra mile to provide for them. Often, those who are self-made success stories will try to protect their loved ones from the experiences they went through.
While the concern is understandable, this approach will do more harm than good. Once you retire, you will not be able to take care of your children the way you used to. Even if you don’t retire, you cannot shelter them indefinitely. Allowing this will only exacerbate your financial responsibilities. That’s why several HNWs have publicly stated that they will give away their fortune to spur their children to be independent.
For HNWs, there is a belief that in order to be successful, each generation needs to see itself as the first generation. The slightest setback can then become their own character-building experience.
Gift your loved others enough to stand on their own but no more. Otherwise they will never learn valuable life lessons.
Plan to pass it on
If you don’t, you could end up like Logan Roy.
Watching your empire burn down around you, whilst you play off your favourites against one another.
Or worse, everything you’ve worked so hard for could end up with Cousin Greg!
The moment that the very thought of retiring comes to mind is when you should start succession planning.
You will have to determine the succession plans the moment the thought of retiring even comes to your mind. By that time, you would have most likely reached a point to be able to ascertain how you would want your wealth to be distributed among your heirs.
It is important that you sit down with your children, close family or your business successors to discuss future plans.
Making rash decisions, being vague or ‘putting it off for another day’ will almost certainly result in future disputes. Disputes that will disrupt the peace and quiet that you’ll be wanting to enjoy post-retirement!
Hopefully, you will have also stopped financing your children’s financial liabilities. Decide who gets what and how much before your retirement happens.
So get planning – for now, later on in life and for when you’re no longer around. And don’t overindulge family members!
We cannot guarantee these tips will make you a HNWI but the advice will put you in the right direction…