Millionaires apt to be frugal, disciplined, says planner

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Millionaires apt to be frugal, disciplined, says planner


Read more: http://www.canada.com/life/Millionaires+frugal+disciplined+says+planner/5734696/story.html#ixzz1eLrC5iH9

CALGARY - Will and trust lawyer Coady Cormier has spent the past 13 years advising people who are worth more than $1 million on how to best protect that money. Along the way, he has noticed some trends in how that money is managed and the attitudes of the wealthy.
Some of the observations are what one might expect.
"I would say in regard to these high-net-worth individuals, that the common thread seems to be that they are very good at being frugal and controlling debt, " says Cormier, vice-president high net worth planning services for RBC Wealth Management Services.
With 20 years' experience, he has spent seven years as a will and estate consultant working with more than 1,000 clients whose net worth was around $5 million. For the past three years, he has been working with clients worth $50 million or more.
Cormier's next observation isn't quite as predictable.
``Also, something I notice in the high net worth landscape (net worth above $1 million) is there seems to be relatively few divorces in comparison to the non-high net worth. In my job right now, however, there are multiple divorces, but I guess when you have $50 million, you can afford to have a few ex-spouses."
What he has come to see in the $3-million to $7-million families are couples who are happy, well-adjusted and dedicated to their marriages, couples with a tolerance for some workaholic behaviour on one side and some constructive criticism on the other.
Cormier says he often sees business owners who are passionate about what they do but are very disciplined with controlling debt. That seems to be the key to their financial success.
"It's this discipline - this being frugal, this managing debt - that allows individuals to develop a bit of a foundation for nice financial net worth going forward," Cormier says.
This foundation, says Tom Sorge, co-founder of Family Wealth Coach in Calgary, is the first of three planning phases - financial independence, where he estimates about 70 per cent of Canadians focus their attention; family legacy, how to spread that wealth to children, relatives or friends; and social capital, or ways to put money to use such as philanthropic donations, rather than the default of taxes.
Cormier points out that many millionaires didn't start out rich.
"One thing that I've noticed is that some of them have actually grown up in poverty. It's not an inherent personality characteristic, I think it's something in the circumstance pushed them. They had to be frugal, they had to be self-disciplined financially - those characteristics served them well. Once their net worth started to lift, some individuals might be inclined to become extravagant, but (the wealthy ones) kept the discipline for a longer period of time."
Individuals who didn't grow up in poverty, but who came from wealthy families, have a greater tendency to get off track.
"The temptation for conspicuous consumption may be more compelling for them, " Cormier says.
"For those individuals, I'd say having an adviser who builds in structure, builds in discipline for them, requires them to get financial plans, have those plans monitored and updated periodically, that's critical.

``Get them on the right track and keep them on the right track."
The best practice is to review financial, will and life insurance plans every three years, and when an individual's circumstances change, such as job changes, marital status, birth of children and so on, Cormier says.
Investment portfolios, of course, are reviewed much more frequently, usually on a quarterly basis.
Financial planning - for all incomes - comes down to these areas: wills, life insurance, managing and planning debt, saving for children's education, saving for retirement, minimizing taxes, and asset preservation.

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Cormier suggests people seek out tax planning advice from their tax lawyer and tax accountant.

Another good source of information and planning advice is an adviser who provides assistance with either investment management or banking. Ask your financial adviser what sort of support the organization provides in regard to tax planning.

Wealthy families often hold annual family meetings, at least until the children are in their late 20s.

It fosters togetherness in families, as well as financial awareness. Parents often open the meetings with storytelling, which illustrates their values and beliefs, and then invite stories from their children. Sorge notes that sharing stories offers a way to value all members of a family, regardless of their personal level of wealth.

Family meetings are also an opportunity to discuss philanthropy and a way for the children to become involved.

As the children get older, some families allow them to manage a private endowment fund within a public foundation. The child manages the investments and keeps the family updated how the various charities have used the funds.

"It helps to foster the financial sophistication of these young adult children," Cormier says.

Entrepreneur and philanthropist W. Brett Wilson recently explained how he has no intention of leaving all of his wealth to his children, instead he plans to disperse much of it philanthropically. Yet, he wants his children to develop a solid sense of money management in a way that provides good. He started a philanthropic fund for his children and ex-wife to manage together.

Sorge notes that decisions around how to manage a legacy can be complicated.

"They're thinking about how much they can leave to their children that will be meaningful to them, but won't spoil their journey," Sorge says.

As the wealth of a family grows, some turn to establishing a family office to steward the wealth of the family for future generations. In essence, the office is an organization that takes on the business of wealth management.

"It's becoming more common in Calgary," Sorge says. "Wealthy people who leave their employment or sell their business hire a chartered accountant or a lawyer or a trust officer - that's the beginning of a family office. Some of the wealthier families in Calgary have established this type of entity."

Calgary Herald

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Tips for managing money

The fundamentals of the millionaire mindset - frugality, debt management, financial literacy and family commitment - are within everyone's grasp.

Take a page from what the high-net-worth people are doing.

* Manage debt.

* Be frugal

* Save more than you spend.

* Create financial, will and insurance plans and revisit them every three years or when circumstances change (marriage, birth of children, divorce, death, job change, raise, etc.). Monitor personal investments quarterly.

* Plan annual family meeting to share financial considerations, foster values and togetherness, and help educate children.

* Discover and implement tax savings.

* Protect assets.

* Consider creating a philanthropic legacy.

Calgary Herald

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High-net-worth individuals, like Jimmy Pattison, are said to be very good at being frugal and controlling debt