What Is Your Wealth Philosophy and Why Is It Important?
Whether you are an entrepreneur, a young professional, or a joyful retiree, defining your wealth philosophy is essential for long-term financial success. Your wealth philosophy is a set of values and principles that inform your financial decisions and overall estate planning. Your philosophy shapes how you see wealth and helps you build long-term financial strategies. A well-defined wealth philosophy is integral to partnerships as well.
Why is a Well-Defined Wealth Philosophy Important?
- Foundation for Decision-Making: A clear wealth philosophy helps you make informed, consistent decisions about earning, saving, investing, and spending. Without it, financial choices may lack purpose and direction.
- Long-Term Strategy: Wealth-building isn’t a one-time event; it’s a continuous process. By defining your philosophy early, you create a framework for long-term financial growth, making it easier to stay focused and avoid impulsive decisions.
- Values Alignment: Your wealth philosophy ensures that your financial strategies align with your core values. Whether your goal is financial freedom, supporting family, or philanthropic efforts, knowing what wealth means to you allows you to build capital with purpose.
- Navigating Uncertainty: Financial markets and economic conditions are unpredictable. A strong wealth philosophy is a guiding compass, helping you navigate fluctuations and uncertainties while staying true to your long-term goals.
Approaches on Wealth
Your wealth philosophy serves as your internal “North Star,” guiding how you earn, manage, and grow your finances. Most people have bits and pieces of a strategy but haven’t felt compelled to put them together or share them with their spouse, their business partner, or their trusted advisors.
Laissez Faire Approach – “My kids or business partners will figure it out.”
The tax system is set up to extract the maximum amount from those who choose not to or fail to plan. Foundational planning addresses what your heirs and business partners should do in the event of your passing or disability. Reluctance to plan derives from all directions, but understanding that these documents are a work in process and that you can change a will, trust, or a buy-sell agreement down the road should give some comfort.
Philanthropic Approach – “I want to give everything to charity.”
This approach is deeply personal and requires strategic planning to be impactful. If leaving a legacy is a priority, there are many ways to effectuate a charitable gift. There are many variables to consider on this journey.
Generational Wealth Approach – “I want to perpetuate and protect wealth for my children, grandchildren.”
For many entrepreneurs and successful families, ensuring their wealth benefits future generations is the priority. Along with that comes the fear of uncertainty. Proper planning can address and mitigate the risks of youthful indiscretion, failed partnerships, businesses, etc.
Of course, these approaches are not mutually exclusive but are the foundation of a broader wealth philosophy.
Understanding How Your Wealth Philosophy Informs Financial Planning
Once you find a direction on a philosophy, you can see how it can drive your financial planning. Here is how it can help you make critical financial decisions.
Alignment with Core Values and Beliefs
When your financial decisions align with your core values, you are more likely to make effective, purpose-driven choices. Connecting your values to your financial approach allows you to set meaningful goals. With these goals in mind, building your wealth and creating a successful financial strategy becomes more effortless.
Risk Management and Adaptability
Your wealth philosophy helps define your risk tolerance, enabling you to take calculated risks. Life insurance, buy-sell insurance, and disability insurance are in the conversation as affluent families evaluate where they are at and where they are going on their financial journey.
Building a Team
Defining a wealth philosophy is made better and put into action when a team of advisors collaborates. Financial advisor, tax advisor, estate planning attorney, and insurance advisor. Questions to ask yourself:
- Who is responsible for coordinating this team and how do we know how the team is performing? What is the process for adding or swapping an advisor?
- Does the team have my family’s best interests in mind?
From an investment perspective:
- Do you know what you own and why you own it?
- What is your proximity to the person who is making the investment decisions?
- How hard is your money working? Are you extracting as much income as you possibly can?
- What is the plan in the event of an economic downturn?
Improved Financial Communication
Communication serves to clear up uncertainty and to clarify your goals and expectations. Financial advisors can be a sounding board and tailor recommendations to fit your philosophy, ensuring everyone involved stays aligned and focused. Ultimately, communicating your approach to family members can ensure the financial assets and the philosophy are cared for.
How We Work Together to Identify Your Wealth Philosophy
Over the next 20 years, an unbelievable estimated $84 trillion in wealth will transfer to heirs and charities. While contemplating your wealth philosophy can feel overwhelming, it should be a top priority for wealth creators. Find comfort in your wealth management team. Find comfort in the fact that your life circumstances are not rigid—just as your life evolves, so can your philosophy. Being transparent about your goals, your dreams, and your concerns will best pave the path forward.
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