Hello friends, Kelly Brothers here, and I just wanted to share with you a question I frequently get from clients and prospects, especially those who are still building toward retirement. They ask me, “What are some things we can do to ensure we can live a comfortable retirement?” I want to share some things I’ve noticed that many of our clients who are living a comfortable retirement have in common.
1. Wealthy People Understand Delayed Gratification
Have you heard of the famous “marshmallow experiment?” Many years ago, hundreds of 4-6 year-olds were brought one by one into a room and seated at a table. A single marshmallow was placed in front of them. Each child was told they had a choice: eat the marshmallow now or wait for the adult to come back and they would get two marshmallows. The kids able to control themselves and “delay gratification” were subsequently tested throughout their lives and were found to have achieved higher levels of education, greater economic success, and experienced much lower incidence of depression than the kids who ate the single marshmallow.
In the world of financial planning, delayed gratification is a foundational pillar. One of the central ideas of planning is to give up something today for the opportunity to have more tomorrow. College requires you forego income today for a more rewarding life four or more years from now. Investing in a retirement plan means putting money aside that can’t be touched, with a few exceptions, until you’re at least 59.5 years old. Business people routinely initiate projects that might grow for 20-30 years before they pay off.
Do you have the ability to delay gratification? Do you make regular, material contributions to your savings? If so, the odds are in your favor for more favorable outcomes later in life. We notice that our wealthy clients fundamentally grasp this concept and practice it regularly. Remember, time is your friend when it comes to investing, as the compounding effects of market growth increase in magnitude the longer your money is at work. So start forgoing that first marshmallow early. It turns out that if you wait for the second marshmallow…you get s’more.
2. Wealthy People Diversify their Income and their Balance Sheets
When I look across our client base, I am reminded by all the ways the people who hire us to help them grow their savings are hard workers AND smart workers. Many of our clients are part of families where both spouses work, and a number of them, as they start to accumulate some wealth, look for ways to earn money from multiple sources beyond their jobs. Whether through investing in the market and taking advantage of dividend and interest income, or with real estate investments that pay rent, by starting a business that generates income over and above any salary they might earn, or by working side gigs that supplement their income, it always amazes me to see all the smart things our clients do make additional income. Often times, those projects, after the initial work to set them up or hire the advisor, work in their favor with minimal incremental time or energy investments from the client.
Also, for our clients and prospects who have much of their net worth invested in a business they’ve started or own, I want to share a refrain we often use when doing estate planning work. Build a balance sheet separate and apart from your business. Having all your net worth tied up in a privately held business can certainly prove lucrative, but it also concentrates risk. If something happens to you or to your business, or there’s a sea change in your industry, you may find that your opportunities to turn your business into liquidity are constrained or worse. Our savviest clients begin planning early to convert part of their business assets into personal balance sheet assets that are separate from the firm.
3. Wealthy People Hire Good People and Empower Them to Do Good Work
Whether it’s with employees or outside service providers, we see that wealthy clients surround themselves with talented, trustworthy people and insist on high levels of performance. It’s also no coincidence that as people move up in affluence, they are more likely to engage the services of a financial advisor. Our wisest clients know what they’re good at and also know when they need help. Our experience shows us that employing a smart, honest team weaving elements of investment management, financial planning, tax planning, and estate planning together to serve the client’s best interest can make material differences in client outcomes over time.
Do you have all three of these habits at work in your life? Have some questions about how you might build these habits? Give us a call at (916) 924-7527 and ask for a GBB advisor or click here to contact us.