With over 25 years of experience as a financial professional, I have seen my fair share of surprise, awe, and even disbelief as I have shared the potential future values of my clients’ net worth. As my college math professor father would say, “It is just the math of it.” This article is designed to explore what can hold individuals back when it comes to financial planning, and the steps they can take to overcome the challenges along the way.
For those who are financially successful, the reality is that wealth (in particular, net worth — which is the type of wealth used for estate tax purposes) has a way of growing, often without one’s direct participation if the proper planning takes place. There are, of course, circumstances that can cause that future wealth to be eroded — particularly if there are major unexpected increases in expenditures (related, for example, to long-term health issues, becoming disabled and incapable of earning an income, or losing a lawsuit). However, while they may be unpredictable, most of those circumstances can be protected against by leveraging various risk management strategies.
The journey from ‘middle class’ to ‘wealthy’
Most wealthy clients I serve were not born into wealth. They came from middle class families, where vacations were often taken in cars. My father-in-law would say, “We have AC; it is called 4 and 40 — 40 miles per hour and 4 windows down.” Thus, for many of my successful clients, the idea of becoming worth the types of numbers we often present seems implausible. However, the truth remains that, “It is just the math of it.”
How a lack of confidence can derail the best financial planning
What I have seen in the world of financial services is a focus on how to get certain rates of return, build the balance sheet, and hopefully, improve cash flows for the future. Although we spend much of our time concentrating on how our assets are invested, investment management is just a small piece of the planning process.
The question of how to own your assets (individually, jointly, in a trust, or even in an LLC) is often never asked or even considered. And even when it is, the answers often require the greatest level of both complexity and cost. A client’s narrative that, “I will never be worth that much” seems to provide permission to postpone the planning, often compounding the problem.
How I help individuals ‘create their own reality’
My overriding goal is to help my clients recognize their future financial potential — and start to implement the kind of wealth strategies that will allow for intergenerational planning. Perhaps most importantly, I help them create strategies for paying for the expenses, such as estate taxes, their loved ones will eventually face should their well-thought-out plan succeed.
In my view, it is critical for my clients to have a sense of how the math works, and how their actions play an important role in their and their loved ones’ financial future. It makes intuitive sense that the more one saves, the better one’s return, and the more tax-efficient the strategy, and the longer one goes without touching their net worth for lifestyle, the greater the net worth has the potential to ultimately be.
An example of a plan in action
Imagine that you have some money in the bank, investments in various institutions, and you find that you are an overall good saver. You have spent most of your working years being responsible, thinking about your future, and putting dollars away strategically.
Then someone comes in and says, “Great job. You have done enough.” Either you stop at that point, or you begin to reach a point of diminishing returns on your continued savings and investments. In fact, you are being encouraged to transfer your wealth (and often the assets that you believe are most likely to grow in value). “Why?,” you ask. Because if you do not, the government is going to take those assets away, perhaps not from you, but from your loved ones, those who mean the most to you.
The reality is that your entire net worth is ultimately going to go to one of three places: the IRS, charity, or your loved ones. But there are steps you can take today to help ensure that the people and institutions that mean the most to you will receive as much of your wealth as possible in the future.
When it comes to taking those steps today, however, there’s one thing that can hold them back: Many people have a hard time facing their future selves.
When I meet with my clients, my goal is to help them see that they are not alone when it comes to thinking about their wealth — that they can “face their fears” over their financial future. These conversations are often scary, fun, exciting, and thought-provoking. My intention is to help people think about their journey today, so they have the potential to create for themselves and their loved ones the kind of financial future that many only dream about.
As we say at Cambium, “Your money is as powerful as your mindset.”
John Kenyon Lang is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. CAMBIUM GROUP LLC is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License Number - 0E68585, AR Insurance License Number - 739812. 2023-163214 Exp 10/25.