7 money questions the rich always ask

 By Todd Gotlieb

If you’re angling to join the ranks of the upper middle class or the rich, it helps to get inside their heads. What makes them tick? What are their financial goals? Further, what do the rich worry about when it comes to money, and how can you learn from their mindsets to grow your own wealth?

Here are some of the most common money questions the rich always ask:

Do I really have enough?

Believe it or not, even the rich wonder if they have enough assets set aside to retire. Even if you have millions of dollars in the bank, it can be difficult to believe you don’t have to work or pursue wealth again.

No matter the size of their nest eggs, the rich worry about having enough money to get through old age while also leaving a legacy behind. They worry about the future costs of nursing home care, whether their life insurance policies are sufficient (and aligned with their financial goals), about inflation, and how the world might change in the next ten, twenty, or thirty years.

Most of all, though, the rich always have a serious case of FOMO – that’s the “fear of missing out.” If they quit working or actively building wealth now, they worry they’ll miss out on the next big thing.

I use the same formulas and tools to help my rich clients as anyone else, and I strive to help calm their fears about the future. Like anyone else, the rich need a solid foundation of investments and a nest egg large enough they can take regular contributions without depleting their assets before they die. They need proper insurance policies in place, and they need to know approximately how much they plan to spend every month.

Once their ducks are in a row, all that’s left is giving themselves permission to let go. It’s difficult to build wealth that lasts a lifetime and well into the next generation, but sometimes it’s even harder to know when to stop.

Will today’s political climate affect my investments?

The day’s political climate tends to rattle the rich no matter who’s in charge, but it’s especially true today. Now, rumors abound that the tax advantages for private corporations are being challenged. The rich, who tend to take advantage of tax-deferred retirement accounts, worry what that means for their income taxes — as well as what these changes could do to broader stock market returns.

The rich worry about new tax plans proposed by, well, anyone. When the hammer drops, will they end up having to pay more? Will there be an inheritance tax imposed because of political pressure? Will capital-gains taxes be raised? Will all the loopholes finally be squashed?

While nobody has the answer to these questions, I tend to remind my clients that there will always be speculation. You can’t plan a tax and wealth strategy based on rumors, so we’ll deal with whatever blows come our way as they come.

And if [insert investment strategy or tax loophole here] changes in a way that makes it less valuable, we’ll find another, better way.

What is the best way to teach my kids how to preserve wealth?

While minimizing taxes is always a concern for the rich, they also want to set their kids up for financial success. Unfortunately, this is one area where the true “rich” seem to struggle. Because they often live luxurious lifestyles, it can be difficult for them to impart important financial lessons on their children.

Think about it this way: A middle-class (or upper-middle-class) family does their own grocery shopping. They can show their kids firsthand the importance of shopping sales and stretching the money they must spend. They likely cook meals at home to save money or shop second hand to buy nicer clothes at a discount. And their kids grow up watching them do it.

“Rich” families, on the other hand, don’t have the same daily money lessons built in. They usually have assistants to pick up groceries and prepare meals, and they wouldn’t necessarily bother buying anything used to save a buck. It’s not that they’re not financially savvy — it’s that the extra steps they need to take to save more money may not be worth it.

The daily lessons rich kids miss out on can leave them at a disadvantage.

Many of whom retire very wealthy, are adamant about not letting their wealth screw up their kids. I point to the book “Fortune’s Children” about the Vanderbilt family. It describes how Cornelius Vanderbilt was the world’s richest person in 1877, yet less than 50 years later no Vanderbilt was counted among the worlds richest.

Thomas Stanley describes the modern version of this effect in his book “The Millionaire Next Door” when he points out the differences between children of millionaires who receive “economic outpatient care” and struggle those who don’t receive as much help and thrive.

The answer to the question is never easy, but almost always ultimately comes back to passing on the values and priorities that helped the wealthy become that way — instead of passing on money.

What happens to my money after I die?

My rich and upper-middle-class clients have spent decades building wealth for their families. That’s why, at a certain point, they start digging deep and planning for the end game. My wealthy clients want to pass their hard-earned wealth onto their kids and other family members. But they want to do it in a way that minimizes taxes and hassle for the next generation.

While the solutions for different families will never be the same, I have helped my clients with all sorts of wealth-transferring strategies. Sometimes setting up a trust — or several trusts — is the answer, while other times we must get tax advisers involved to transfer business assets. I frequently help clients meet with lawyers to set up power of attorney, a healthcare proxy, and a living will.
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Some clients want to leave money to their kids or grandchildren, but they don’t want them to receive that money all at once (i.e., receive a huge inheritance at age 18). In those cases, we make sure trusts are set up with timelines that dole out cash when family members reach a certain age.

Do I need to invest in alternative investments?

Some rich clients hear about all the fancy investment options available and wonder if they should dive in. Hedge funds, for example, are run by the rich and targeted at the rich.

While there are plenty of complicated investment options out there, I tend to advise my clients to keep things simple. Not only does such a strategy simplify their lives, but it can lead to higher returns, too.

One of the best predictors of future returns is the underlying expense of the investment you are making. And historically, low-cost investments typically perform better than high-cost investments.

“Alternative investments, like hedge funds, look interesting on paper, but the high cost of owning them has historically prevented them from keeping up with broad market indexes like the S&P 500. So why would we, as financial advisers, steer them into this complicated, overpriced world?

The answer: We shouldn’t. Most of the time, wealthy clients are better off investing in low-cost, traditional asset classes and focusing on other areas in their financial life that they have control over to put themselves in a better financial position.

How do I preserve capital?

If you’re young and an average earner, many financial professionals would advise you to dial up your level of risk — especially in the stock market — to help grow early wealth that will compound over time. But what if you’re already rich? What if you’ve been working decades and want to continue growing wealth without putting too much on the line?

A lot of my clients think just as much about preserving capital as they do about grow it. They already know how to make money, but they worry endlessly over how to keep it.

In these cases, I help them preserve their cash with an array of financial products that can include high-interest savings accounts, municipal bonds, Treasury Inflation Protected Securities, and sometimes even insurance and annuities. Of course, the right strategy for every rich family is different and depends on an array of factors including their ages, how much wealth they have, and how long they need it to last.

How do I lower my tax bill?

While there is plenty of debate over whether the “rich” pay too much or too little in taxes, it is true they pay a higher tax burden overall. After all, when you earn more than most, you usually fork over larger sums of money in the form provincial and federal taxes. The rich also pay taxes on investment income and tend to pay higher property taxes and other taxes, too.

A colleague of mine, financial planner Joseph Carbone of Toronto, says that because of his clients’ large tax incomes, minimizing taxes is typically their number-one priority.

Many of Carbone’s clients are forking over nearly half of their income in federal and state taxes, he says.

“It is a fine line that we have to skate when it comes to selling investments that are going to generate capital gains taxes,” he says.

Because many of his clients are taxed heavily on their incomes, causing any “extra” taxes that year can be an additional burden.

It’s crucial for those with higher incomes to have a few people in their corner – a financial planner and tax professional who help them formulate an investment, charitable giving, and saving strategy that is financially optimal in terms of how much they owe each year.

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