Did you recently add a second comma to your bank balance? Has a recent financial event raised your net worth to the next level? It's an exciting time, whether it's the result of your long-term goals such as diligent saving and investing, the sale of a business, a windfall transfer of wealth, or a key promotion.
You're probably already considering how to protect and manage your wealth.
Estate Strategy on a New Playing Field
You may already have an estate strategy in place. However, reaching a new level of wealth may be an excellent time to revisit your approach. More wealth can mean a larger estate and more complex estate issues. For example, it may be time to consider a living trust. You create a living trust while alive and fund it with the assets you choose to transfer therein. The trustee (typically you) has full power to manage these assets. But using a trust involves a complex set of tax rules and regulations. So before moving forward with a trust, consider working with a professional familiar with the relevant rules and regulations.
If you need an introduction to an estate planning attorney from our network, please let us know.
Many newly wealthy individuals feel like they are in a rush once they have their money. Although you may not be ready for a spending frenzy like you see with some lottery winners, the excitement and mentality shift could push you to some rash decisions, large or small. Now that the world is your oyster, you may be better off waiting for the pearl. This means getting accustomed to your new bank balance before putting the money to any practical effect. A few conversations with a financial professional regarding your ambitions may help put things into perspective.
Another idea here would be to write your goals down, including any items on which you’re planning to spend. By writing it out, you may better evaluate the planned purchases, make sure they align with your goals or budget, and make informed choices.
What You Need Today
Your new wealth will create as many questions as it will opportunities. For example, if you've sold your business or are considering leaving your job, you will need to consider health insurance choices for yourself and your household. Other household demands may also warrant consideration, from travel costs to big one-time purchases. You will almost certainly face some unplanned expenses along the way, so be sure that your short-term budget makes an allowance for that.
You don’t want to fall victim to lifestyle creep (you have more so you spend more) which essentially puts you in the same financial position of when you had less but spent less. Planning today can help ensure your additional funds continue to work for you in the future. If you are on track for reaching your goals in your financial plan, you don’t have to feel guilty about raising your standard of living. A planned shift is different than an unexpected shift and making intentional choices is important.
Risk Tolerance and Time Horizon
Your risk tolerance will be affected in part by your ongoing day-to-day needs. For example, if you're considering buying a new home, money may need to be earmarked for all expenses related to that purchase. The risk takes into account not only the home itself but also your overall strategy. The time horizon determines the lengths of time considered for your various expenditures. Some unexpected expenses may happen within a few months, while addressing some others may be able to be put off for a while.
Congratulations on that second comma becoming a part of your everyday life. It will mean many exciting things for you and your household, some of which you've prepared for and others you might not have anticipated. We would be happy to help you understand what this milestone means for you and your family.
Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.
The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.
Published for the blog on October 27, 2022 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.