advertisement
Personal Finance

Maintaining wealth once you attain it

Delegates, family business conference
Delegates during a family business conference in Nairobi. PHOTO | DIANA NGILA 

At the root of almost every individual and family fortune is (or was at one time) a successful business. You must know someone either from your village or classmate who once was very wealthy. What happened? They got rich easily, but maintaining those riches and turning them into lasting wealth was far more difficult.

Kenyans are respected for long races in the athletics circles. Many of the athletes, however, die miserable if not poor. Currently almost every Kenyan youth is playing a lottery game but you do not see any difference in their lives, and there is a whole lot of temptation to spend that money frivolously or out of a sense of obligation. Just realise that, without a plan in place to help it grow, that newfound money is finite.

Almost anyone who gets a windfall can fall prey to sudden wealth syndrome, the recipient falls into the trap of believing that their newfound wealth will never run out and they can buy everything and do anything.

Some people who get an inheritance, sign a big contract, get a stock payout or win a settlement, usually buy huge houses and boats and go on spending sprees. Some invest heavily in risky ventures or faltering businesses owned by friends or relatives.

Ask yourself: after you're gone, how much of your business' wealth will be left for your children? More important, will they be able to maintain and grow that wealth over time? These are important questions for family businesses, and entrepreneurs who have family — or who plan on having a family — to ask.

advertisement
 

If your pockets are deep, it is natural to spread the wealth to your children. To do so effectively, it is essential to communicate specific goals to your beneficiaries and create a plan for the future.

When is the right time to start thinking about sustaining wealth? And what are the essential questions you need to ask to help you make your money last? To help you in answering these questions and more, I will give you some guidelines.

It is ultimately up to you to decide if you want to bring in advisers or handle your riches yourself, but I suggest at least having a plan. Draw out a budget so you will know what you can and cannot afford, create a budget that ensures your expenses won't exceed your income. Put that plan into place before making large purchases to make sure you are making the right decision. Even if you opt to retire, you are going to want to refrain from invading principal amounts too quickly and running out of money.

It is tempting to use new money to put in exotic investments, but a well-diversified portfolio adjusted for your risk tolerance is the best way to secure your financial goals. Depending on your situation, you may want to consider more complex planning techniques, such as creating trusts or reconfiguring insurance arrangements.

Hiring an adviser who is knowledgeable about changes in the tax and economic climate, and one who is experienced in proactively addressing the complex issues of affluent individuals, is key.

Furthermore, given the increased demand across the world for greater transparency, individuals and families should work closely with their advisers to understand how their investments will impact their tax positions, as well as any ongoing reporting requirements. Contributions to charities are a means to give back to the community and promote causes — all while receiving tax benefits. There are many options to accomplish charitable objectives, most involving organisational, financial, legal, and family issues.

Technology influences all areas of your life, including business and personal finances. The question is: How do you apply technology to keep your operations running smoothly? The ability to access, analyse, manipulate, and report data can make virtually every part of managing your finances, running your business operations more efficient. Implementing the right technology with the right partner is key.

Successfully sustaining wealth requires a combination of realistic strategies and comprehensive conversations between generations about priorities for spending, saving and giving. And, while it also may require changes to lifestyle for a family, working with heirs to determine and agree on family goals — whether education costs, healthcare or philanthropic assistance — will help define and establish a process for meeting those goals. In addition to conversations within the family, research indicates that advisers, when helping to facilitate or plan these strategies, can play a critical role in discussions and can boost confidence.

Communicating openly with family members on the sometimes-difficult subject of wealth can be a challenge, but starting the discussion is essential to educating the next generation and making sure they are ready for the responsibilities of wealth. Although about two out of five respondents think it is never too early to discuss financial wealth with heirs, most ends up delaying the conversation until heirs are 18 or older.

Death is far from a cheery subject. It won't be easy, but to prepare your family for that inevitable day, write up a letter of wishes. Generally, these letters are not meant to be legally binding. Think of it as an opportunity to bequeath items of more sentimental value (as opposed to explicitly monetary).

In the letter, you can also communicate your hopes for the future. Entrepreneurs may want to use the letter to describe how their businesses came to fruition, and to encourage or dissuade your children from following in your footsteps.

advertisement