Wealth Clarity Blog

As a business owner myself, there is no shortage of fears and worries that I either want to ignore or don’t know who I can talk about them with. It has morphed over the years, and I definitely feel more comfortable talking about deeper issues and concerns, but it has taken me a long time to get to this point.   

In retrospect, it was many times pride, fear of failure, and other times just the lack of someone (other than my wife) to talk to.  After a few years of dumping on my wife, and some counseling, we concluded it wasn’t good for our relationship.  Close friends may not be a good alternative either, because many times they just don’t have the experience or perspective to offer much value or guidance.  Key employees are also generally not good choices due to confidentiality and the potential for your raw thoughts to be shared with other third parties. 

But make no mistake, friend or no friends, these fears and worries are real and go home with the business owner every night, whether or not you consciously think about them.

The funny thing is, business owners are generally an optimistic bunch, and we really would much prefer to just focus 150% on running and growing our business and not waste energy on things out of our control.  However, this mentality only creates a false sense of security that can easily unwind into unintended consequences; namely, we aren’t really prepared for the uncertain future that awaits all of us. 

So, here are three fears you may want pay much closer attention to: 

1. Feeling isolated at the top—no one to talk to or be real with.  Advisory boards can be great, but are not always the best venue for processing your inner concerns, hopes, and dreams.  Unsure about whom to trust and with what information?  Concerned that if you trust someone with confidential information about the business it could get leaked? The need for a true confidant to listen to your joys and disappointments without an agenda and to hold you accountable is invaluable.
2. What if something bad happens?—get sick, die, divorce.  Who is asking you the hard questions without sugar coating it?  Is there a contingency plan to address these unfortunate potential events so your wife, family, and key employees aren’t left with a big mess to clean up?  Does someone know you and your situation well enough to help guide your choices that will impact your life and business?
3. Burnout caused by an out-of-balance life.  Who are you without the business?  Is there an overarching plan or legacy for all this hard work and time?  Consider a broader view of your wealth that includes intellectual, financial, social, family, and spiritual capital. Many times the business and financial capital is well developed and other areas of life are immature.   

I have lots of experience with these fears and many others and have carried them around for years.  It was about 3 years ago that I finally realized the importance of facing them head on.  The benefits have come in the form of lower stress, greater life satisfaction, and a clearer purpose and meaning for my life. 

If you have questions about my journey in this area, please drop me a note and let’s grab coffee.  I’d be happy to share my story.

Guest Blog provided by Richard Beaton & Linda Wagener of Marigold Associates.

Over the past several weeks, we discussed the value of using deliberate training strategies such as allowances and budget management to teach children financial skills. In this segment we’re going to tackle the problem of how to form our children’s attitudes toward money and work. These are rarely shaped simply by education. They are rooted in the basic practices and habits of family life.

You may have heard the phrase “shirtsleeves to shirtsleeves in three generations.” It refers to the fact that often a person’s attitudes toward money and work can be traced to where they are in the family wealth cycle. Those in the first generation of affluence learned how to earn and manage money because they had to. There were no family funds to buy them everything that they needed, wanted, or thought they wanted. They had to work to pay for any extras and even in some cases, the necessities, like clothes. If they wanted a college education, they had to take out loans and work part time. By the third generation, the work ethic has often declined to the point where the accumulated wealth of the family is depleted by a generation who has learned to be consumers rather than creators of wealth.  But it doesn’t have to play out this way.

We interviewed a member of a fourth-generation family of wealth who illustrated this pattern clearly. His side of the family had continued to live productive lives. Their wealth had increased in every generation. Another branch of the family, the “country-club cousins,” had burned through their inheritance. Their kids would be back to shirt-sleeves. The difference? He pointed out the window to an 8-year old neighbor kid, mowing the lawn across the street. “See that kid? His family is worth millions. But they live modestly, and expect their kids to work as soon and as hard as they are able. See that other kid next door? He’s 16 and has never held a job. His family doesn’t have the wealth of the other, but probably never will.”

In our work with entrepreneurs and families, we have heard variations on this story over and over again. The families whose children grow up to be hard-working productive contributors are expected to work and be responsible, just like everyone else. They live comfortably but modestly. They also recognize that their wealth is a responsibility, not a privilege. It is to be used for good, not for pleasure.

Five Things You Can Do to Teach Your Children to Handle Wealth Wisely

1. Let them learn the joy of working hard and the reward that follows. It may be tempting to think that schoolwork is enough to accomplish this, but schoolwork has sadly become more about performance achievement. In contrast, work contributes to the well-being of others and is a piece of a larger enterprise.
2. Never use money as a reward for achievement such as grades. Such practices teach kids that money is the only reward that matters, and they distract them from the intrinsic pleasure of doing well.
3. Live modestly. This is often very difficult for those who want to enjoy their wealth. One entrepreneur we interviewed came from significant poverty and loved the lavish lifestyle he was now able to afford. The children of his first marriage had blown through every cent he had given them. He didn’t want the same thing to happen to the kids of his second marriage, yet he couldn’t give up the ostentatious lifestyle. Eventually he had nothing left to pass on.
4. Be wise with your inheritance strategy.Let your kids know from an early age that they will be expected to work and live responsibly. Make a commitment to yourself that you won’t give large sums of money to adults who have not demonstrated the capacity to use finances wisely. 
5. Don’t use your wealth to protect your kids from the harsh realities of life. Admittedly, this is difficult for any parent, but your children need to be exposed to those in need in order to build their sense of empathy and gratitude. You can build their hope by demonstrating how your wealth can make a difference in the world. Involve them early in giving back through hands-on service in their community. There are many excellent organizations that provide opportunities for young people to develop their skills. Social Venture Partners (Seattle) is one good example.

There is little in life as satisfying as seeing your children flourish in their lives; delighting in their life’s purpose. Whether they end up with modest or robust incomes, they will need to know how to work hard and manage their finances. As parents you can make a significant difference through financial education and creating a family environment that forms their character and values.

A big “thank you” to Richard Beaton and Linda Wagener of Marigold Associates for guest blogging.  Feel free to contact them directly if you have questions or need more information.  As a reminder, we are hosting a luncheon on February 15th to hear more about the subject of Kids & Money from these two experts.  If you have an interest in learning about the event, please contact jessica@highlandprivate.com.

This is the second post in the series on Kids & Money from our friends at Marigold Associates.  Enjoy!

Kids typically don’t pick up basic life skills through osmosis. They have to be taught how to clean a bathroom, check the oil in their car, and manage their money. Often what they have learned about money is “ask and ye shall receive.” As you can probably guess, this bit of wisdom doesn’t lead to financial independence.  A good financial education can provide a wonderful foundation for your child as he learns to manage wealth on his own.

The goal of financial education is to form financially responsible adults with positive values about money and useful financial skills. Financial training and education should begin as soon as children are old enough for pocket money, around kindergarten or first grade. There are several good programs on money management for children available in your local bookstore or on Amazon. These offer common-sense approaches and point out typical mistakes that can derail the enterprise. One such example we like to recommend is Making Allowances:  A Dollars and Sense Guide to Teaching Kids About Money, by Paul Lermitte with Jennifer Merritt.

Keep in mind that the biggest obstacle to the success of financial training is whether busy parents will commit the time and energy to stick with it!

The details of the plan that you decide to use can vary, but generally it should include the following elements:

• Allowance system. An allowance system is a basic contract between you and your child that guarantees you will give her a set sum of money to cover out-of-pocket needs on a regular schedule. In return, she agrees to responsibly contribute to the family by performing basic chores. Start simply and add funds and complexity as your child demonstrates readiness. The allowance amount should be appropriate for their expenses. By adolescence, kids should be able to manage their clothing budget. By the time they reach college they should be able to handle all of their own living expenses within the budget they are given. This will give them lots of experience having to make difficult choices. Do they save money to travel on spring break or buy new clothes every month?
• Let them control their own funds. Resist the temptation to “help.” Let them learn from their mistakes. No bailouts! On the other hand, do not use the allowance as reward or punishment for behavior.
• Talk with your children about money and your family financial decisions. Show them how you decide to make substantial purchases, shop for the best product/prices, ascertain what you can afford. Be sure to provide examples of decisions that include delaying or denying purchases.
• Use moderation in your spending. It is not good for your children to have the most expensive and latest of everything. No teenager ever needed a $300 pair of shoes!
• Give them something to work for and save toward, for example, an iPhone or a car. Help them learn the habit of putting away a portion of their income (gift and earned) for a larger project. As they master the early stages they may able be handle to loans and repayments for larger purchases, though saving is a better model.
• Help them establish the habit of giving to others. Remember, however, it is not theirs to share if you have handed it to them. In order for them to feel the benefit of giving, it needs to come from their own pocket.

Beware the financial education you provide your children will bring up all your own issues about money. You will discover what those are as you implement a money management system for your children. Over-protectiveness will come up as you find yourself tempted to give them a “bail-out” when they have overspent. Equating money and self-worth will lead you to want to give your kids expensive gifts to keep up with their schoolmates. Using money as a reward or punishment will demonstrate your own need for control.

We hope you will follow one of the excellent programs that offer detailed instruction in wealth management. While education is essential, it is not enough on its own. The deeper challenge lies in developing character, values, and a commitment to living a life of purpose. Formation of character and values within family practices play a prominent role in limiting the negative impact of wealth on your children. This is the topic of our next blog in this series.  Stay tuned!

I am excited to have Richard Beaton and Linda Wagener, founders of Marigold Associates, provide a series of guest posts related to the topic of kids and money.  As a heads up, we are hosting a lunch seminar on Wednesday, February 15th, that will give you an opportunity to hear even more of their deep wisdom and experience in this area.  If you are interested in attending, please contact jessica@highlandprivate.com.

Will your children be positively or negatively affected by the financial wealth you share with them?

In thirty years of working with families and children, we have never heard one family member express concern about the impact of wealth on their kids. Wealth is always assumed to be a good thing.  But the reality is that there are plenty of reasons to be concerned.

The value of wealth lies in its power to expand opportunities and resources that can strengthen families and provide a good life for children. There are extraordinary young people coming from families of means who are thriving and contributing positively to society. There are also extraordinary young people coming from families of means who are floundering amidst the wealth, overwhelmed by abundance and opportunity.

Affluence increases certain risks. There are far too many examples of young people whose lives have been distorted by wealth. The negative impact of wealth can result in a broad range of life problems, which include:

• Lifelong financial dependency.
• Loss of hard won family wealth due to mismanagement or unhealthy lifestyles.
• Destructive values about money such as equating money with self worth or believing that happiness depends upon having all the latest trends.
• Over use of credit, ending in unmanageable debt.
• Family conflict and resentments about money and inheritances.
• Loss of incentive to live a life of substance and meaning.

Gift that it is, wealth apparently has the power to build or destroy. What makes the difference?

We have been studying multigenerational families of wealth for many years, and here’s what we’ve found.  Some of the families we have observed have practices that consistently result in generations of children who become creatively engaged in life. They contribute to their families and communities through productive lives. Other families have struggled. Their children are voracious consumers of wealth who have failed to build their lives around a meaningful purpose. In the worst cases, there have been drug and alcohol problems, eating disorders, family alienation and estrangement.

We observed that the successful families have deliberately prepared their children for wealth. Beginning at a young age, they have provided financial education and training, formed their children to have strong values including a work ethic and integrated certain practices into their family life.

This is the first of a series on how to prepare children for living with wealth. We will tackle each of these topics – education, formation and practice – in the blogs that follow. In the meantime, here is something you and your family can do in preparation:

1. Discuss with your spouse what you’ve done to prepare your children for wealth.  What concrete steps have you taken?  Where are you succeeding? Where could you improve?
2. Talk with your children about their views about wealth.  What do they think money is for?

There is a lot written about time management, and specifically, how to align your limited time resources with the highest value purposes.  Simply said, using your time wisely.  In fact, I wrote a post not long ago about the fact that you can’t buy back your time so don’t waste it. 

Taking a different tack on this concept, a recent blog post by Harvard Business Review correctly states, many people confuse being busy and working hard with accomplishing a life of purpose–or living fully as I like to call it.  Filling our time with lots of important looking activity (i.e. stuff) can be another big time waster because it keeps us from purpose driven activities that create real meaning in our lives.

In a recent meeting with a well respected local CPA firm, one of the partners was describing the value add they provide to clients.  In a world where precious few professionals focus enough energy on adding value in my opinion, I was impressed with his response:  

We allow clients to buy back their time. 

What a great concept and also a simple way to describe one of the key benefits that Highland strives to provide.  Knowing that successful and wealthy individuals have, and can control, most aspects of their lives through the choices their wealth provides; the one thing they can’t buy is more time.  However, they can pay to exchange that time into more valuable uses.   

So, what is your time worth if you were to buy it back?  Or better yet, to use it for something more valuable or important to you?  Don’t look at that question from a billing perspective, like an attorney, but instead ponder the value of freeing your time to pursue the things that bring you the most meaning and purpose.   My guess is that your time is extremely valuable when viewed through that lens.

John Wooden was famous for saying, “don’t confuse activity with achievement.”  Likewise, when considering how you spend your time, don’t confuse hard work with living fully.  

Time is a precious resource, and if you have ample financial resources, the exchange may be just the prescription you need to start moving closer towards the life you always dreamed of. 

What are you waiting for?

One of our jobs at Highland is to develop investment portfolios that maximize return and minimize risk.  While investment portfolios are critically important, it is only one facet of life; there are other areas of life that if properly considered, can guide you to a well managed life portfolio–something we at Highland refer to as living fully.

In that regard, when was the last time you took a hard look at your “life portfolio”?  By that I mean, checking to see if you have proper diversification, are balancing trade-offs, and measuring performance in key areas such as:  family, health, community, or even fun experiences?    

Personally, I value my health and want to have an active life well into my senior years.  Considering my current condition, I would rate my health possibly a 6 out of 10 (not very good).  To move that needle a little bit higher would be rather simple:  get more active.

In isolation, taking proactive steps towards better health sounds easy, right?  Well not really because I have a ton of excuses and embrace them all!  But considering my life goals, it’s worth it to me to invest the time, energy, and money on a trainer so I’ll have some accountability.  Check with me in 6 months; I expect to feel and look much better. (More importantly, check with me when I’m 70; how many times did I go skiing with my grandkids?)

For those who are interested in living fully, this can be a life changing exercise.  Budgeting effort, time and resources into the life you have always dreamed of can pay dividends in ways you could only hope for.  The daily or weekly investments you make now reap dividends and compound over time.

In my next post I’ll be sharing a few ideas on how to make simple and easy investments into your life portfolio that can help move you closer to living fully.

What is the “real” cost of your lifestyle?  Not the amount you spend each year but instead the other emotional and real implications of living the way you’ve chosen.  My recent trip to Africa helped put this in perspective in a way that was life changing.

There is something in the Seattle area called the “eastside lifestyle”.  It refers to the suburban area east of Seattle that tends to attract people with higher incomes and wealth.  It has less to do with location (as there are neighborhoods like this in Seattle proper) and more to do with the way in which upwardly mobile people tend to live.  It implies access to bigger homes and amenities, better schools and more Range Rover-type families, and generally newer everything.  Most communities on the West Coast, and elsewhere, have their “eastside” pockets or bubbles.  For many people, including our clients, the financial cost to live this lifestyle ranges roughly from $200,000 to $400,000 per year.

I’m not making a value judgment about this lifestyle (I live on the eastside), but my experience shows that the impact of living this type of lifestyle extracts a cost that is real and tangible.  I’m not referring to the actual dollars spent but instead the emotional and time implications, and the trade-offs we all have to make to live this way.

Real costs, or even symptoms of the eastside lifestyle, include:  anxiety and worry; thinking about work when on vacation or weekends; no margin in our lives; stress and pressure to get into the best private schools and sports programs; difficulty staying on top of the financial complexity, keeping up with the Joneses, etc.  These costs can be amplified further if there aren’t reasonable financial controls and boundaries around spending or the ability to say no.

This is where Africa comes in:  as the picture of this African family clearly shows, many people of Uganda have virtually nothing; average earnings are about one dollar per day. For this reason, Ugandans value everything they have and feel so blessed to have it.  Sure, they are enticed by the American dream, but they also realize that it doesn’t bring happiness or joy.  The have more love and community than we do by a long shot, and it was interesting to realize that it wasn’t because of lifestyle or status.

I came home realizing how blessed I am but also how many of these lifestyle costs I feel personally.  They can exhaust me, and drain valuable energy from me so that I’m not present and available to those I care about; they also limit my ability to use my blessings to impact the world around me.

I just don’t plain need all the things I have and quite frankly I was appalled at how often I carelessly handle and manage the many financial gifts in my life.  Here are a few of the practical implications of this lesson and a few of the changes I’m making in how I live my life:

• Buy less
• Making sure I understand whether it’s a want or a need
• Making do; let things wear out before buying something else
• Say no more often—it’s okay to deny myself things from time to time
• Reduce the number of “things” in my life that create complexity
• Improve my communication about money at home

These types of adjustments to lifestyle are hard to make.  We all get hard-wired into living modes that create difficult patterns to break. Even though I want to make changes I find I still fall prey to old ways of living, however, the first step in change is awareness.

Going against the grain, choosing to lead the un-eastside lifestyle, takes energy and commitment.  I’m curious to hear from those who’ve done it and whether you’d be willing to share your journey and what you’ve learned?

In my last post I talked about the young millionaires, many 35 and younger, and the hidden risks of not seeking financial advice; opting instead for a do-it-yourself approach.  To the credit of this budding wealth creator crowd, the financial services industry has been big, slow, and expensive to work with, and as the next generation of wealth creators, you are demanding something better.

If this is you, then what are the telltale signs of financial advice that can add value to your life AND be worth paying for?

Here’s your grading guide:

1. Access to information about subjects you care about and that can be consumed easily and quickly.  This would mean electronic newsletters, blogs, videos that address areas of need and that are in short bit sized nuggets.  The ability to create thought leadership that is timely and interesting.
2. Information that is focused on you.  Valuable opinions and information about subjects that can improve your life instead of how important and successful the advisor or investment company is.
3. Interested in finding and interacting in the places you like to be, when you want to.  This would suggest communicating with you in ways you enjoy, whether that be through twitter, email, Skype, and questions and comments via blogs.
4. Transparent communication.  Do you really understand what they do, who they are, and why it matters?  If value isn’t communicated effectively then I would argue it isn’t present.
5. Value that can be experienced in every interaction.  A clear willingness to help you get where you need to go, and not only if you buy something or sign a contract. If this happens, and you see tangible progress towards your goals, the cost will become less and less relevant. Continue Reading »

Catching a cab ride back to the New Orleans airport recently, I was reminded of several important life lessons, and the teacher was my 82 year old cab driver, Eddie. 

It was clear that Eddie was nearing the twilight of his career as a cabby and his plan was to turn in his meter at age 85.  (In retrospect, I had to laugh at this statement considering how much time I spend helping people race to retire before sixty.)  Regardless, when someone is close to retiring, I always like to ask them what they plan on doing with their new found time, and what life has taught them. 

Eddie told me he felt blessed by the life he’d lived in Louisiana (69 years of hot and muggy); he planned on continuing to give back to the community by cutting the hair of men at the local nursing home (I guess he was a barber in his spare time too); he made a conscious effort to simplify his life several years earlier by selling his rental properties and cab company because they created too much worry and stress;  and he didn’t fret about what others had that he didn’t because as his grandmother told him many years ago, “all that glitters ain’t always gold.” 

Have you ever had a conversation with someone like Eddie where the experience is sort of surreal?  I was caught off guard by his authenticiy and simplicity of his life.  As I flew home to Seattle, these were a few of the takeaways: 

1.)    How often I have made my life more complex than it needs to be; all for the sake of getting more and achieving more.  In many cases, it has given me stress and worry in spades. 

2.)    How often I’ve taken for granted the blessings in my life, especially living and working in the Pacific Northwest.  I have made an intention to appreciate the beauty of this area more regularly and not complain so much about the weather.

3.)    How many times I let my desire to give back philanthropically be controlled by my perceived level of financial success instead of as a reflection of my heart and its capacity for love and compassion. 

I don’t think I’ll see Eddie again before he retires, but there is no doubt I left his cab more positive and self aware than when I got in. 

Here’s to making 2012 a year to remember.  Purpose, simplicity, authenticity…..Living fully!

Happy New Year!

Managing your money and investments while living in the land of complexity can rob joy from your life.  Do you want a bigger house or a new shiny toy, or would you prefer the ability to really enjoy your money doing the things that bring you true happiness?  I think most wealth creators want the latter, but don’t know how to get there.

I was meeting with a new prospect recently, and they were sharing their worries and fears with me as a part of our Ideal Outcomes Conversation™, where we are able to discover what pain points are keeping wealth creators from living the life they desire.

In this particular case, money wasn’t the stressing issue per se; this couple had plenty of money and weren’t worried about their next meal or if they could pay for their kids’ college education.

Continue Reading »