How to Wreck-Proof Your Wealth Plan - Part 1
Without an inherent demand to protect your wealth you will never create and sustain true wealth: wealth protection comes before wealth creation.
WEALTH PROTECTION FIRST; WEALTH CREATION SECOND When we talk about Estate and Tax Planning, Retirement and Business Succession Planning are we talking about Wealth Protection or Damage Control? In my opinion we are talking damage control or financial-rescue if we are nearer the end of the cycle than the beginning.
Wealth protection, if it lives up to its name, can only occur in the first half of the cycle.
Let me explain.
PRIORITISING WEALTH Most people know how to acquire those big ticket items like a home-theatre-system, car or home but very few people realize that the most expensive thing they will ever buy in their lives (and the most beneficial to have) is their retirement.
And by putting it last on their list of priorities they never get to acquire it.
The sooner you prioritize retirement (or wealth as I prefer to call it) as your number one priority the sooner you will become wealthy and the sooner you will "retire".
Although the wealthier you become the less interested you will become in retiring.
Who wants to "retire" when they are having so much fun? Wealth is not an end result.
Wealth is not simply an accumulation of assets.
Wealth is a specific process, a particular state of consciousness and a definite style of income generation.
ALL BORN WEALTHY The truth of the matter is that we are all born wealthy and have no need to chase wealth.
It is not over there or down the road; it is right here right now.
It is inside.
The trick is not to let it get away.
And that is the difference between the wealthy and the poor.
The wealthy never let it escape; the wealthy "wreck-proof" their inherent wealth potential.
The wealthy maximize the use of their time and their money and work in step with the growth-laws of the universe.
As Wallace D Wattles points out in chapter 3 of his insightful book The Science of Generating Wealth (I have adapted his original title to bring it into the 21st Century): "The universe is a great living presence, always moving inherently toward more life and fuller functioning.
Nature is formed for the advancement of life, and its impelling motive is the increase of life.
Because of this everything which can possibly minister to life is bountifully provided.
There is no lack unless God is to contradict himself and nullify his own works".
CONSERVATION OF ENERGY The wealthy work with this principle of the increase of life and ensure that whatever they do and whatever they outlay creates more.
Their energy flows towards creating greater bounty.
The wealthy do not waste their time or their money.
Their mindset is focused on the advancement of money and the creation of greater bounty in the present moment.
Every effort is deigned to conserve their income stream so that it grows and never declines.
Their focus is simple: with every financial transaction they ask; "how much money can this rand bring back to me? By how much will this rand grow my net asset value (NAV)"? Every rand if possible must work to create more rands.
Nothing must be wasted; all energy must be utilized for the advancement of life and wealth.
But herein lies the difference between the wealthy and the rich.
DIFFERENT PRIORITIES The goals and priorities of the two groups are entirely different: The wealthy wish to protect, sustain and grow their wealth without exposing themselves to unnecessary risk.
Their goal is excessive cash, based on low maintenance, sustainable and recurring income, manageable risk and a low cost base.
They keep liabilities to a minimum and are always positively geared.
It is a longer-term goal.
The wealthy never retire, they have no need to.
Who needs to retire from a perfectly ordered life in which you have created and sustained excessive cash? The rich on the other hand wish to acquire luxuries and status - and often these luxuries are costly and expensive liabilities rather than income generating assets.
It is a short-term goal.
The rich know how to generate a substantial income but they don't know how to sustain this income stream with least effort and are always dissipating their energy working hard to maintain it.
Income comes at a high cost both financially and physically; the latter often in the form of ill-health and divorce.
They know how to spend however, are generally short on their cash flow, and ever increase their exposure to risk.
The rich dream of retiring to escape from their hell hole.
But they have made insufficient provision for retirement and are forced to slave for their entire lives to keep up their "rich" standard of living.
They often fail through ill health or untimely death.
PRESERVATION AND PROTECTION For the rich at some point life becomes complicated; especially if one is generating substantial income and is embroiled in a complex web of assets and liabilities.
The situation forces the realisation that one needs to protect one's financial position.
Now the questions of Retirement and Tax Planning are raised.
The situation requires costly and complex arrangements to be put in place, but an ideal solution is not accomplished.
Costly expertise is now required to protect certain assets; life assurance is introduced to cover unforeseen taxes.
It is late in the day and "financial-rescue" is taking place.
The forward planning has not been done and once again energy in the form of time and money is being wasted.
WEALTH PROTECTION vs.
FINANCIAL RESCUE We must not confuse "wealth-protection" with "financial-rescue".
While both involve estate planning, tax planning, retirement and retirement income planning, business succession planning, inter-vivos trusts and so on, the way in which they are used is quite different.
With financial-rescue we are not doing it in the most cost and tax effective manner or at the appropriate time.
We are trying to protect our wealth when the horse has already bolted.
Financial rescue incurs costs to reduce the consequences of even greater loss.
It is a damage control function that reduces one's income and the value of one's estate.
To maximize our wealth and minimise our costs we need to set out our wreck-proof wealth plan up front.
We need to include the wealth protection formulations as an integral part of the wealth creation plan so that when we arrive at the point when we actually have excessive cash we do not need to make any costly changes to protect our retirement income or estate from the tax man; or our estate from being sold piece meal to meet the requirements of our will.
THE THREE STAGES OF WEALTH GENERATION Many "wealth creators" believe that they are strict disciples of Robert Kiyosaki in their approach to investment in the property-rental sector.
But Kiyosaki is critical of those followers who only take up part of his advice.
He states quite clearly that 9 out of 10 would-be property investors will not make money; never mind create wealth.
And the reason for this is that they do not follow his advice of building wealth step by step.
Kiyosaki sets out a three tier approach to wealth creation and is firm that you have to work through and complete each stage before you can move onto the next.
Our wreck-proof wealth protection checklist outlined in part 2 is built on these three stages: Financial Security Financial Comfort and in my terminology Wealth Generation According to Kiyosaki one's success during these stages rests on 3 critical ingredients: Education, Experience, and Excessive Cash; and without these you are not going anywhere.
For Kiyosaki Wealth Creation is not possible without becoming financially literate and this includes a basic financial instrument programme (Education); active investing and business involvement (Experience); and Excessive-Cash management and proliferation.
WRECK-PROOF vs.
CRASH-PROOF But why "wreck-proof" as opposed to the more common expression: "crash-proof"? The idea that you will never crash in either your business or your wealth plan is not practical.
To succeed in life you need to gain wisdom.
And wisdom is generated through making mistakes.
In fact the only way you can ever succeed is by experience and not through gathering information.
You have to get into the water to swim.
You cannot learn to swim on dry land.
Investing and business is the same.
To get good at it you have to do it and when you do it you make mistakes.
You will crash.
It's guaranteed.
But you will also gain wisdom! What you need to ensure however is that you don't wreck your plans or your business in the process.
You need to act in such a way that your mistakes will be compartmentalised and will lead forward.
In the words of John Maxwell you will: "Fail forward"; and your mistakes will not wreck you or wipe you out.
But you need to make mistakes if you wish to become wealthy.
You cannot learn to become wealthy from books.
Wealth and Patience, by the way, are inseparable.
BEWARE THE LONG SNAKE! So clearly the first step in generating wealth is not making a clever investment; the first step in wealth creation is wealth protection; the process of wreck-proofing your future estate, businesses and investments at least cost.
And if you have overlooked this step, then regrettably you are guaranteed to fail in your quest for wealth at some point, no matter how far down the road you may be.
There are rules to creating and sustaining wealth and if you fail to pay attention to these rules upfront, then no matter how many ladders you may have climbed and no matter how close you may believe you are to the winning post, beware the long snake.
In the game of snakes and ladders there is a snake just before the winning square and if you land on that square it takes you back virtually to the beginning.
Wealth protection is probably 80% of the journey to sustainable wealth and it allows you to avoid that particular and other similar snakes.
See Part 2 for Your Wealth-Protection Checklist
WEALTH PROTECTION FIRST; WEALTH CREATION SECOND When we talk about Estate and Tax Planning, Retirement and Business Succession Planning are we talking about Wealth Protection or Damage Control? In my opinion we are talking damage control or financial-rescue if we are nearer the end of the cycle than the beginning.
Wealth protection, if it lives up to its name, can only occur in the first half of the cycle.
Let me explain.
PRIORITISING WEALTH Most people know how to acquire those big ticket items like a home-theatre-system, car or home but very few people realize that the most expensive thing they will ever buy in their lives (and the most beneficial to have) is their retirement.
And by putting it last on their list of priorities they never get to acquire it.
The sooner you prioritize retirement (or wealth as I prefer to call it) as your number one priority the sooner you will become wealthy and the sooner you will "retire".
Although the wealthier you become the less interested you will become in retiring.
Who wants to "retire" when they are having so much fun? Wealth is not an end result.
Wealth is not simply an accumulation of assets.
Wealth is a specific process, a particular state of consciousness and a definite style of income generation.
ALL BORN WEALTHY The truth of the matter is that we are all born wealthy and have no need to chase wealth.
It is not over there or down the road; it is right here right now.
It is inside.
The trick is not to let it get away.
And that is the difference between the wealthy and the poor.
The wealthy never let it escape; the wealthy "wreck-proof" their inherent wealth potential.
The wealthy maximize the use of their time and their money and work in step with the growth-laws of the universe.
As Wallace D Wattles points out in chapter 3 of his insightful book The Science of Generating Wealth (I have adapted his original title to bring it into the 21st Century): "The universe is a great living presence, always moving inherently toward more life and fuller functioning.
Nature is formed for the advancement of life, and its impelling motive is the increase of life.
Because of this everything which can possibly minister to life is bountifully provided.
There is no lack unless God is to contradict himself and nullify his own works".
CONSERVATION OF ENERGY The wealthy work with this principle of the increase of life and ensure that whatever they do and whatever they outlay creates more.
Their energy flows towards creating greater bounty.
The wealthy do not waste their time or their money.
Their mindset is focused on the advancement of money and the creation of greater bounty in the present moment.
Every effort is deigned to conserve their income stream so that it grows and never declines.
Their focus is simple: with every financial transaction they ask; "how much money can this rand bring back to me? By how much will this rand grow my net asset value (NAV)"? Every rand if possible must work to create more rands.
Nothing must be wasted; all energy must be utilized for the advancement of life and wealth.
But herein lies the difference between the wealthy and the rich.
DIFFERENT PRIORITIES The goals and priorities of the two groups are entirely different: The wealthy wish to protect, sustain and grow their wealth without exposing themselves to unnecessary risk.
Their goal is excessive cash, based on low maintenance, sustainable and recurring income, manageable risk and a low cost base.
They keep liabilities to a minimum and are always positively geared.
It is a longer-term goal.
The wealthy never retire, they have no need to.
Who needs to retire from a perfectly ordered life in which you have created and sustained excessive cash? The rich on the other hand wish to acquire luxuries and status - and often these luxuries are costly and expensive liabilities rather than income generating assets.
It is a short-term goal.
The rich know how to generate a substantial income but they don't know how to sustain this income stream with least effort and are always dissipating their energy working hard to maintain it.
Income comes at a high cost both financially and physically; the latter often in the form of ill-health and divorce.
They know how to spend however, are generally short on their cash flow, and ever increase their exposure to risk.
The rich dream of retiring to escape from their hell hole.
But they have made insufficient provision for retirement and are forced to slave for their entire lives to keep up their "rich" standard of living.
They often fail through ill health or untimely death.
PRESERVATION AND PROTECTION For the rich at some point life becomes complicated; especially if one is generating substantial income and is embroiled in a complex web of assets and liabilities.
The situation forces the realisation that one needs to protect one's financial position.
Now the questions of Retirement and Tax Planning are raised.
The situation requires costly and complex arrangements to be put in place, but an ideal solution is not accomplished.
Costly expertise is now required to protect certain assets; life assurance is introduced to cover unforeseen taxes.
It is late in the day and "financial-rescue" is taking place.
The forward planning has not been done and once again energy in the form of time and money is being wasted.
WEALTH PROTECTION vs.
FINANCIAL RESCUE We must not confuse "wealth-protection" with "financial-rescue".
While both involve estate planning, tax planning, retirement and retirement income planning, business succession planning, inter-vivos trusts and so on, the way in which they are used is quite different.
With financial-rescue we are not doing it in the most cost and tax effective manner or at the appropriate time.
We are trying to protect our wealth when the horse has already bolted.
Financial rescue incurs costs to reduce the consequences of even greater loss.
It is a damage control function that reduces one's income and the value of one's estate.
To maximize our wealth and minimise our costs we need to set out our wreck-proof wealth plan up front.
We need to include the wealth protection formulations as an integral part of the wealth creation plan so that when we arrive at the point when we actually have excessive cash we do not need to make any costly changes to protect our retirement income or estate from the tax man; or our estate from being sold piece meal to meet the requirements of our will.
THE THREE STAGES OF WEALTH GENERATION Many "wealth creators" believe that they are strict disciples of Robert Kiyosaki in their approach to investment in the property-rental sector.
But Kiyosaki is critical of those followers who only take up part of his advice.
He states quite clearly that 9 out of 10 would-be property investors will not make money; never mind create wealth.
And the reason for this is that they do not follow his advice of building wealth step by step.
Kiyosaki sets out a three tier approach to wealth creation and is firm that you have to work through and complete each stage before you can move onto the next.
Our wreck-proof wealth protection checklist outlined in part 2 is built on these three stages: Financial Security Financial Comfort and in my terminology Wealth Generation According to Kiyosaki one's success during these stages rests on 3 critical ingredients: Education, Experience, and Excessive Cash; and without these you are not going anywhere.
For Kiyosaki Wealth Creation is not possible without becoming financially literate and this includes a basic financial instrument programme (Education); active investing and business involvement (Experience); and Excessive-Cash management and proliferation.
WRECK-PROOF vs.
CRASH-PROOF But why "wreck-proof" as opposed to the more common expression: "crash-proof"? The idea that you will never crash in either your business or your wealth plan is not practical.
To succeed in life you need to gain wisdom.
And wisdom is generated through making mistakes.
In fact the only way you can ever succeed is by experience and not through gathering information.
You have to get into the water to swim.
You cannot learn to swim on dry land.
Investing and business is the same.
To get good at it you have to do it and when you do it you make mistakes.
You will crash.
It's guaranteed.
But you will also gain wisdom! What you need to ensure however is that you don't wreck your plans or your business in the process.
You need to act in such a way that your mistakes will be compartmentalised and will lead forward.
In the words of John Maxwell you will: "Fail forward"; and your mistakes will not wreck you or wipe you out.
But you need to make mistakes if you wish to become wealthy.
You cannot learn to become wealthy from books.
Wealth and Patience, by the way, are inseparable.
BEWARE THE LONG SNAKE! So clearly the first step in generating wealth is not making a clever investment; the first step in wealth creation is wealth protection; the process of wreck-proofing your future estate, businesses and investments at least cost.
And if you have overlooked this step, then regrettably you are guaranteed to fail in your quest for wealth at some point, no matter how far down the road you may be.
There are rules to creating and sustaining wealth and if you fail to pay attention to these rules upfront, then no matter how many ladders you may have climbed and no matter how close you may believe you are to the winning post, beware the long snake.
In the game of snakes and ladders there is a snake just before the winning square and if you land on that square it takes you back virtually to the beginning.
Wealth protection is probably 80% of the journey to sustainable wealth and it allows you to avoid that particular and other similar snakes.
See Part 2 for Your Wealth-Protection Checklist
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