Many years ago in my California office a client came in with his son. He had been to an educational meeting the week before at which I had commented that I felt I could make a millionaire out of just about anyone if they would only be willing to follow the plan I laid out for them. On that day he introduced me to his son who had a handicap, consigning him to a life of working at or near the minimum wage. The man asked if I could help make even this son a millionaire.
Without hesitation we set to work reviewing his son’s finances and setting up a budget and investment plan which required him to contribute a certain amount from each paycheck throughout his life. We didn’t have a lot to work with but we had a dedicated individual who was willing to follow a plan. That young man was faithful in his contributions and spending and now, in his 40’s, has a significant account and is well on his way to achieving his goals. There are never guarantees in investing but, he may possibly reach that goal early.
One of the most common questions I am asked regards my minimum account size for new clients. Most are surprised to learn that I don’t have a firm minimum amount but rather have what I call, a minimum attitude standard. More important than what someone has today is where they want to be tomorrow and if they are willing to pay the price to get there.
Investing is a game of numbers but many erroneously assume that you need to start with big numbers, or earn big numbers, in order to win the game. I would gladly take a person with a great attitude over one with a fat paycheck. Money is easily lost or spent, while discipline and a proper attitude towards money can help someone survive and thrive through the many changes and challenges that life throws at you.
So what is a proper financial attitude? It is a willingness to accept and follow some basic and natural laws that govern financial success. Too many try to cheat the laws and wind up disappointed. Start by asking yourself some simple questions. Am I willing to follow a budget? Does my budget set aside funds for future needs as well as unforeseen expenses? Can I postpone spending until I can afford it? Do I use debt only for those necessary things that cannot be reasonably obtained without it? Am I willing to live below my income today, so that when I retire I can live above my income?
No one knows the long term outcome of any investment plan, but the highest likelihood of success comes to those who first establish a proper attitude towards money. They are the ones who are most able to control money for their own good, rather than being controlled by it.
Today’s story began many years ago when a person was referred to me for financial advice. The 70-year-old gentleman had a substantial investment account, accumulated over many years. To say this man lived miserly would be an understatement. Rarely in my life had I seen someone with so much money live in such meager circumstances. It is not unusual for financially successful people to be tight with their money, but this gentleman was an extreme case.
Over the years we had many great conversations and while he continued to live like a pauper, his account grew into many millions. As his age stretched into his 80’s the man, like many, began to exhibit signs of diminished mental capacity. Financial advisors go through annual training to help recognize these situations, which sadly are becoming much more common.
Initially I began to discuss with the man the need to bring his only son on board with his finances, and to prepare him in the event he could no longer manage his own affairs. He resisted strongly, not wanting his son or anyone else to know anything about his money. I tried numerous times to convince him that he couldn’t hide his personal information forever, that eventually his son as the only heir would become involved, and suggested it would be far better if that happened while the man was still coherent enough to have a good discussion with him about it. Given the man’s strained and distant relationship with his son, he continually refused my requests to involve him.
I also had a business relationship with the son over the years, but strict privacy laws prevented me from discussing anything about his father with him. Thus, I was caught in a very uncomfortable position. My elderly client continued to decline mentally and with the decline he made some rash and often strange decisions. We would often get odd requests to transfer out large sums of money, which the man did not remember making when we called back to verify.
When dementia begins it often comes and goes and sometimes this man was as smart as ever so he did not see the problem that I saw. He absolutely refused any recommendation to bring someone else in to help, which left our office in a difficult situation. Our hands were increasingly tied in our efforts to help him, yet we felt a commitment to continue doing all we could to protect his account, usually from his own poor decisions.
It is a sad reality that along with living longer comes the increased risk of facing dementia at some point. Before you reach the situation of this gentleman, please find someone you trust, family or otherwise, and involve them in your finances. Give them authority to make decisions. Give your financial advisor permission to share information with them. Failing to do so can bring an unfortunate end to a lifetime of otherwise careful financial planning.
A lady came in my office years ago to ask my advice. She had invested a large sum of money into a program that was paying her a rate of return far in excess of what would be reasonable. It was immediately clear she had gotten into a Ponzi scheme. This type of fraud occurs when future investor dollars are used to pay high returns to prior investors. Money just circulates but there is no real product. Eventually the scheme comes crashing down when there is not enough new dollars to keep up with the payments to investors. Many Ponzi schemes successfully run for years because investors are often content to see their “gains” merely posted on a monthly statement rather than delivered to them physically. If too many ask for actual redemptions the scheme will fail.
In the case of this lady I was shocked to find out that she was perfectly aware she was involved in such a scheme. She said that she got in early and her goal was to try and get as much money out as she could before it came crashing down, and oddly wanted my opinion on when I thought that might happen.
This individual was not an investor but a speculator, in the extreme. Investors look to buy something today whose value will increase over time. Speculators hope to buy something today that they can sell at a higher price tomorrow, with inherent value being secondary or even insignificant. They often don’t even care what the investment is. A good example of speculation is the currently explosive Bitcoin market.* Six years ago you could buy a Bitcoin for 8 cents. Today, and this changes by the minute, they are selling for over $4,000. As more people have been asking me about Bitcoin lately, my first question is, “Can you explain to me what a Bitcoin is?” Very few have been able to give a good answer.
Bitcoin mania, with all its media hype, appears to me to be a symptom of a potentially bigger problem. I see a growing number of investors who are starting to talk and act more like speculators. Rather than looking for value, many are looking only at what they think tomorrow’s price might be. Historically markets have often soared and crashed when this speculative attitude manifested itself.
Many who are buying Bitcoins and other speculative investments may laugh at me all the way to the bank if they happen to get lucky, but I am an investor, not a speculator. I would rather miss out on a big gain, than risk my hard earned assets in unwise speculation. They say in flying that there are old pilots and there are bold pilots but there are no old bold pilots. I feel the same way about investing. There are investors and there are speculators. Some may have a thrilling ride today, but I prefer to be the one who lives to enjoy tomorrow.
Everyone who is successful at managing money will one day face the question of what to do with it when they are gone. Most want to leave something for their children, but in this desire they face a dilemma. Their children who have been financially responsible probably don’t need their money, while the financially irresponsible ones won’t know what to do with it.
There is no easy or best answer to this question so let me just share what we have done. With our large family we face the prospect of leaving some money to kids who don’t need it, and some money to kids who would likely be made worse off if it was just handed to them.
We began our decision process by recognizing that few are benefitted by being given a large sum of money that they did not earn. We would rather leave our kids nothing than harm them with money they cannot handle, so we limited how much each can receive, regardless of the size of the estate. The rest would go to charity. To accomplish this, we created a family trust that allows a single, small initial payment to each child. A year later they receive a slightly larger, though not significant, second payment, and so on. The hope is that they might learn to manage smaller amounts at first.
Ultimately, using a combination of tools, each receives their allotted inheritance over the course of their lifetimes. In doing so, our plan was to give them enough to make life a little more enjoyable, but not so much that they would become lazy, or wasteful. We are confident some of our kids will be disappointed in our plan, but we are okay with that. I’m sure as parents we disappointed them by not buying them a new car on their 16th birthday, or requiring them to work at the office for their spending money or only allowing them to order waters when we went out to eat. We have always tried to teach our kids personal responsibility and didn’t want our last act as parents to contradict a lifetime of lessons.
Ours is not a perfect plan. I haven’t seen a perfect plan, but we feel it best exemplifies our personal mix of parental charity and tough love. We want to bless our kid’s lives, but not cripple them. I have seen far too many people leave large inheritances to financially irresponsible children, thinking they were doing them good, only to watch those same heirs have their lives made worse by money they were not prepared for.
When your children were young, hopefully you didn’t hand them the family checkbook as a sign of your love for them. You gave them just enough to get them to where they could help themselves. Those same sound financial principles work well with inheritances. Some may complain at this approach. If they do may I suggest using that time honored parental response, “You’ll thank me for this one day.”
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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