Live Well, Stay Rich, Never Retire — Part Two

As a wealth advisor, my mission is to inspire and empower entrepreneurs and business owners. I help them fulfill their professional ambitions, achieve financial independence and become the best versions of themselves. How? By introducing them to the approach to living, planning and investing that fuels my personal and professional success. I call it Live Well, Stay Rich, Never Retire. This article is the second in a three-part series. Read part one — Live Well — and part three — Never Retire — to see the complete picture of how this philosophy and framework can fuel your success.

Part Two — Stay Rich

Do you know what’s funny about the idea of being rich? Just about everyone you meet wants to be rich, but if you ask them exactly what that means, they often fumble with an answer because the question never occurred to them before.

Does $1M make you rich? How about $100M? Does owning real estate and stocks make you rich?

In Ontario, the highest tax bracket applies to individuals earning more than $220k, so does that mean that the Provincial Government believes anyone earning more than $200k is rich?

The famous Oxford English Dictionary defines the word rich as “having much money or abundant assets; wealthy, moneyed, affluent.” Heady stuff.

What’s interesting is that the definition doesn’t stipulate how much money you need to be considered rich. Nor does the definition (or anyone you might ask for a definition) distinguish between material and nonmaterial assets. What about having a healthy and thriving family? Or many friendships? Or exciting experiences? Or positive relationships? Do they count?

What does this tell us? Your definition of rich is yours and yours alone.

Personally, I think money is an essential ingredient in defining “rich,” but I also believe that achieving financial independence is simply a means to an end. It is a tool that enables you to obtain the security, comfort, freedom, time, friendships and experiences that will make you genuinely “rich.” I don’t want to earn, save and invest just to build my bank account. I want to do it so I can Live Well.

Here are the steps you can take to achieve your version of Stay Rich.

Step one: Define what rich means to you

When I work with business owners, I ask them what it would mean for them and their family to be rich. This is partly covered by mapping out the objectives that help them Live Well, but it’s also about pinning down just how much money it would take for them to achieve financial independence.

It’s a critical starting point because you can’t achieve a goal unless you know what it is.

Let’s look at an example.

Say I sit down with a client who defines rich as having an investment portfolio that will generate enough income to cover their family’s annual expenses, which total $100k. Using the rule of thumb that you need 25 times your annual expenses in investments, that means they need to build up a portfolio of approximately $2.5M. Let’s further assume that because I’m a financial planner, my job is to help them make conservative plans, so we add 50% to that projection. That means that this client’s target number for achieving financial independence and being “rich” is $3.75M 1.

Now we have a target, which does two things. One, it helps us plan earning, saving and investing. Two, it lets the client start to dream about what life could be like when they get there, which is where the fun of financial planning comes in.

There is nothing quite like envisioning a life where you call the shots and make all the decisions. Where you don’t have to worry about money. Where you decide how to spend your time, your money and your attention. (And you thought financial planning was all about boring spreadsheets!)

Step two: Organize your earnings and savings to reach your number

With your target number in mind, you can turn your attention to earning, saving and investing — all with the motivation that comes from knowing what you want to achieve and why you want it.

The key to building up the investment portfolio you will need is to make saving and investing a priority. Strategies like paying yourself first and making wise decisions about major purchases like a new car or larger home are a critical first step.

The basic fact of saving is that you need to not spend. It’s also the hardest part. It can be so tempting, especially for business owners who have lived frugally for many years while their business is getting off the ground, to not spend when the money begins to roll in.

Living deliberately isn’t just about becoming your best self. It’s also how you ensure you are saving enough.

It’s fine-and quite enjoyable-to reap the rewards of your success. But make sure you do so within your means. And don’t get drawn into lifestyle creep that makes your expenses climb as you keep up with the Joneses. Also, always set aside a sufficient amount every month to keep yourself moving toward financial independence.

From there, you can map out a plan for how to invest your money so you will achieve your goals. You might choose to do so with an investment advisor, or you might go it alone. Either way, pursue an evidence-based investment strategy that ensures you avoid the risks of letting emotions guide your decisions.

To help with this, I advise all of my clients to write an Investment Policy Statement. It will guide your long-term decision making about your investments.

Step three: Make a plan to stay rich

Once you have your own clear definition of “rich” and a consistent approach for saving and investing that will get you there, you can develop a strategy to Stay Rich. This is where solid financial planning becomes essential.

Here are some of the topics a financial plan should cover.

Cash flow projections: Project yearly balances for your future investment portfolio so that you can monitor and flag years when your portfolio falls below estimated balances. Early detection of your actual portfolio falling below your projected portfolio will allow you to make course corrections and reduce the chances of running out of money in the future.

Defer and minimize taxes: Devise a strategy to defer and minimize personal and corporate taxes as much as possible. This may involve Registered Retirement Savings Plans (RRSPs), a Tax-Free Savings Account (TFSA), an Individual Pension Plan (IPP), or corporate-owned life insurance.

Risk assessment: Prepare for the unexpected by conducting a comprehensive analysis of your personal and corporate exposure to risk. Then look into the appropriate corporate insurance for accidents, life insurance, disability insurance, and critical illness insurance.

Will and powers of attorney: Prepare your will to reflect your wishes for how your estate will be distributed. Also, take time to establish the appropriate financial and medical powers of attorney.

Plan for business succession: As a business owner, your personal financial future is entwined with the future of your business. Do everything you can to plan ahead so when the time comes, you already have everything in place to make the transition as smooth as possible. For example, are you passing the business on to some of your children? Or are you planning to sell? If it’s the former, you should consolidate the company leadership so that it can be transitioned smoothly to your children. If it’s the latter, you should distribute the leadership because no one wants to buy a business that relies on the continued leadership of the current owner.

That’s it. Three steps to achieving your version of Stay Rich: define rich, save and invest, and make a financial plan.

Read part one- Live Well -and part three-Never Retire-(coming soon) to finish out the series.

Did this article resonate with you? What did I miss? Send me a note and let’s start the conversation. The process of finding a commission-free financial planner in Ontario can be overwhelming. Our proprietary financial planning process is designed with you in mind. Its simple framework helps you make an informed decision about hiring the appropriate advisor.

Call me if you want to map out how you can Never Retire. You can also subscribe to our Never Retire newsletter 1Assumes a 4% withdrawal rate with 2% inflation and excludes government or employer pensions, contact us to Order a complimentary book, register for one of our events, and to meet with a Certified Financial Planner. We offer you a range of services from a wealth plan to investment advice or help you take advantage of our investment models. Call me at 416–355–6370 or email me at [email protected]

Originally published at https://richarddri.ca on December 5, 2019.