You may have heard of the third-generation curse, which causes 90% of wealthy families to lose their money by the third generation. But some individuals manage to deplete their wealth even sooner, especially if they came into a lot of money quickly.
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For instance, athletes, entertainers, executives and entrepreneurs who achieve runaway success after years of financial hardship may suddenly find themselves with seven-figure bank accounts and no idea how to carefully spend and manage their money.
The same thing can happen to people who inherit a lot of money. In fact, money mismanagement is one of the primary factors in the third-generation curse if sound financial values and solid money management strategies weren’t passed on through the generations.
Many of these families did not start off wealthy, and had already developed sub-optimal money habits by the time they became wealthy. Often, it’s hard to change those habits that have been formed over a lifetime. But when you have money, you, unfortunately, become a target. Your behavior needs to change if you want to preserve your wealth.
GoBankingRates spoke to Ken Eyler, CEO of Aquilance, a financial administration company focused on bill pay, bookkeeping, and complex entity and investment reporting for wealthy families. He shared with us seven tips to preserve generational wealth, whether you are a new heir, a social media influencer who hit it big, or an entrepreneur who’s struggled for years before finding that business idea that set you up for life.
Tighten Your Security Profile
As an advisor to high-net-worth and ultra-high-net-worth families, I often encounter those who make easily avoidable mistakes with their fortunes. Many of these families did not start off wealthy, and had already developed sub-optimal money habits by the time they became wealthy.
I see security as one of the biggest vulnerabilities for families. One of the common pitfalls are folks who were accustomed to posting about their travels on social media, especially if they first made it big in the public eye.
But when they are traveling on private jets and leaving their multimillion-dollar homes, they open themselves up to threats when they reveal their whereabouts. My recommendation is to post after the fact instead of in the moment. Also, take seriously the importance of anonymity when checking into hotels or visiting tourist attractions.
Preventative measures are also important to increase the safety of your family and your property, both physically and digitally. Install good locks and monitored alarm systems as a start to protect your property. Employ secure methods of communication to share sensitive information –not email.
Review Your Insurance Coverage
My clients are often unsure about the changing nature of the insurance they need. They don’t know what is available, or how and when to obtain it. As they enter into the HNW category, protecting their assets becomes more complex. For example, securing coverage for expensive homes in risk-prone areas (such as Florida and California) is challenging today. It often requires working with a reputable broker that specializes in HNW coverage who can advocate to carriers.
Additionally, I’ve seen issues arise when there are gaps in insurance coverage. For instance, a client pays cash for a $20 million home in Manhattan and moves in with their $5 million art collection. They didn’t have a mortgage, so no one required insurance at settlement, and it was overlooked. If you are uninsured for Property & Casualty insurance, you probably also neglected to shop for liability coverage. This can lead to problems if you are a victim of fire or theft or if anyone is injured in your home.
Work with the Right Professionals
Just as you want to speak to a broker who specializes in insurance for HNW individuals, you should consult with other financial professionals to ensure you are making the right decisions. Financial planning tactics that you used in the past may no longer be sufficient, and a top wealth advisor who understands allocations and high-end strategies is a critical piece of your financial infrastructure.
Find a good financial advisor who holistically understands your assets and has visibility across multiple accounts. They can help you plan your spending and manage your cash flow in order to make the best decisions for your future.
Having a team of exceptional professionals in other areas who communicate to enable continuity is also crucial. I recommend working with an experienced trust and estate attorney, a tax accountant that…
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