DeFreitas & Minsky Accounting Blog

How to Achieve Wealth Sustainability

Posted by admin on Oct 14, 2014 11:02:11 AM

wealth sustainability

It’s no surprise that wealthy people have an interest in sustaining their wealth through future generations. However, what is surprising is how few of them are confident in their ability to do so. In a recent study published by Merrill Lynch’s Private Banking and Investment Group, a third of the participants indicated that their biggest financial concern is their uncertainty about wealth sustainability.

As it turns out, their fears aren’t unfounded—in fact, two out of three times, a family’s wealth doesn’t outlive the generation immediately following the one that created it. What’s even more frightening, is that assets wind up completely spent before the end of the third generation ninety percent of the time. This is such a common occurrence that there’s even a phrase for it: “Shirtsleeves to shirtsleeves,” when a family finds themselves in the same financial position that they started.

Despite the scary statistics on wealth sustainability, there is a bright side for the folks who want to see their wealth go the distance. Identifying the many ways that others have failed to sustain their wealth is an important step to ensuring you’re not destined for the same fate. Having a solid understanding of what’s necessary for wealth sustainability is the most important factor in actually achieving it.

How to Achieve Wealth Sustainability

  1. Be explicitly clear when articulating your wealth sustainability plan with your family. It’s absolutely integral for a family to be on the same page when it comes to fiscal responsibility. You need to clearly outline both your purpose and your plan in order to keep everyone in line.
  2. Keep an open dialogue between generations. Family wealth can be easily dwindled to nothing if future generations fall out of touch with the hard work and dedication that was put into building it in the first place. Always be sure to educate new generations about priorities relative to spending, saving, and giving, to ensure that callous irresponsibility doesn’t exhaust the family wealth.
  3. Lead your family by example. If your children grow up in a lavish lifestyle of excess and extravagance, they will be likely to maintain that lifestyle through adulthood. In order to make your money, you had to work hard and held high expectations of yourself to succeed; if your children aren’t taught the importance of holding themselves to the same standards, they may not work as hard to make money for themselves, because they’re cushioned by the family wealth. This is the trap that so many families fall into that causes their wealth to evaporate. By this we don’t mean you can’t have nice things and live comfortably, but rather that it’s important to really impress upon your children that you live the lifestyle that you do because you worked hard to earn it, and that it requires equally hard work to maintain.
  4. Acknowledge that there’s no fixed formula for wealth sustainability. This isn’t an exact science with an equation you can plug variables into for guaranteed results—sustainable wealth is an ongoing process that needs constant attention and grooming to continue moving forward. You need to map out a plan for the longevity of your family wealth, but be mindful of the bumps you may encounter along the way, and be flexible enough to deal with them as they come.

Do you have more questions about wealth sustainability and how to set yourself up for a successful financial future? Call the tax professionals at DeFreitas and Minsky LLP at (516) 746-6322 today!

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Topics: Financial Planning, investment

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