The upsides of building wealth slowly

The upsides of building wealth slowly

Maybe it’s a stage in life that you get to, when eventually you recognise that building wealth for most people is a pursuit that happens over many years, indeed decades. And most importantly, that it’s perfectly acceptable to build wealth slowly.

Certainly when we’re much younger – in our teens and twenties – the idea of quick riches is very alluring. The constant barrage of people on TikTok and Instagram who have “made it” at a very young age can drive heightened levels of envy. If they can do it, why can’t I?

But as we get older, we start to understand that for every successful and overpaid sports star and celebrity, thousands have been unsuccessful in their pursuit of riches by this route. That’s not to say that talented people shouldn’t have dreams and go for it, and ultimately be well rewarded. Because good luck to them! But it’s a very tough road on which many people flounder.

And then we see lots of incredibly wealthy people who made their riches by building up and eventually selling some or all of their businesses. Again, these people should only be applauded, as they may well have taken an idea, not listened to the naysayers and then put their heart and soul into building their successful enterprise. Well done to them, they deserve everything that they have achieved.

And then there are the others, who hit lucky. They got in (and out) of some risky asset class at just the right times and made their fortune that way. Of course, in their eyes, there was no luck involved – it was all down to their savvy investment decisions. We know that for every one person who timed markets perfectly, there are so many more who got it very badly wrong.

But the likelihood is, all of these people paid a price in some way along the road to success. The price may have been the significant time spent in a laser like fashion in their pursuit of success. Or indeed the significant risks they took along the way by being exposed to a single asset.

There is another way.

The alternative is – to build your wealth up slowly. While you may not get the opportunity to tell the world about your exceptional talent or investment wisdom, there are many upsides to it.

People who build their riches through sporting achievements or indeed building businesses use enormous amounts of one of life’s most precious resources in doing so – their time. Building your wealth slowly through structured financial planning and wise investment decisions does not use lots of time, leaving it available for you to use as you want. You may be replacing the road to quick riches with time spent with your family, being home in the evenings to eat dinner with the kids and getting to support them at those precious football matches.

We’ll also never leave you sitting there, sweating about the prospects of some investment bet that you took. Because we’ll never suggest you take the roulette approach and invest all your money on a single share or some volatile asset class. You might not get rich overnight, that will take more time. But your family will always be secure, irrespective of how markets perform. We think you should celebrate these facts, spending time living your life to the full and never putting it all at risk.

Hats off to the successful people. But hats off too to those people who took the alternative path of living life to the full. There’s a lot to be said for being driven by the life you want and not the public acclaim of riches.

Estate Planning – thinking of others…

As our clients progress through their financial lives, we see a consistent trend. Thoughts tend to move from thinking about the “here and now” to a much greater focus on the future. While the age at which this happens varies from client to client, retirement coming on to the horizon is an obvious driver for this mind shift. Alongside this, or maybe lagging by a few years are thoughts and conversations about passing wealth efficiently to loved ones. Of course, this opens up the whole discussion about estate planning.

This in turn creates a very important conversation, and that is the purpose of your wealth accumulation. Are you accumulating wealth solely to live life to the full in retirement and that it is there to be enjoyed by you as you live out your life? Or are you accumulating to give your loved ones a helping hand at some stage in the future as they navigate their own wealth journeys? Or is it a bit of both?

By the way, none of these objectives are right or wrong, they’re just different. But we believe everyone should carefully consider them. Apart from the importance of having clear objectives and purpose in your life and for your money, there are also tax considerations when it comes to passing money to children.

Estate planning differs to other areas of financial planning in that the tax opportunity / problem belongs to your children who will inherit the assets, rather than the parents who are passing on wealth. Different people like to approach this issue in different ways, and again, who are we to say who is right?

Some people approach this from the perspective of having accumulated the wealth themselves, it’s theirs to spend as they wish. Whatever is left over after they’ve shuffled off this mortal coil will be inherited by their children. If some tax must be paid on this, well, the kids will just have to pay this out of cash inherited or by selling some of the assets if necessary.  

Others want to leave everything all tied up with a bow on it, as neatly as possible for the next generation. They want to live their life to the full too, but they want their inheritance to be structured so that even the tax bill is planned for. The benefit of this approach is that they can then ensure that maybe a particular asset such as a holiday home won’t need to be sold to pay a tax bill, but instead can stay in the family as a legacy and memory of the parents.

The difficulty in Ireland today is that the amounts a person can inherit tax free, known as the Capital Acquisition Tax thresholds are so low, and the tax rate is high at 33% on inheritances above these thresholds. While the thresholds for children receiving inheritances are not generous, they are significantly lower again where the relationship to the person leaving the money is more distant. It doesn’t take an enormous inheritance to exceed the thresholds, resulting in tax bills for those receiving it.

The good news is though, that if the parents and/or the children are minded to addressing the issue while the parents are alive, there are strategies that can be deployed to mitigate the tax bill. These can include using specific life assurance solutions, or indeed the parents can gift money to the children tax free using the Small Gifts Exemption while they are alive. As with most areas of wise financial management, a little bit of foresight and advanced planning can produce remarkably more positive outcomes for all. When it comes to enjoying your retirement and leaving a tax efficient legacy behind you, maybe you can have your cake and eat it…

If you’re wondering what slice tax might take from your legacy, feel free to give us a call.