Scott Pape: What to do when you're suddenly rich

COMING into large amounts of money brings the challenge of protecting that wealth and finding further meaning in your life, writes Barefoot Investor.

Once you are wealthy earning more money won’t make you any happier.

COMING into large amounts of money brings the challenge of protecting that wealth and finding further meaning in your life.

 

RICHARD ASKS: I am 42 and have just sold my business for what many people tell me is enough to live out my life without ever working again — $10 million. I can’t see it happening myself. You talk a lot about how to get ahead for the average person, but my circumstances are not average. Yet I feel equally confused about what to do. I think a lot of people out there come into money and are in the same position. Super, shares, houses, managed portfolios and cash are all on my hit list. But what to do?

BAREFOOT WRITES: Congratulations on your success. You’re right, I do give advice to what you call average people. However, I also spend a lot of time helping wealthy people. And you’re also right to be confused. What no one ever tells you is that large amounts of wealth can totally screw up a family. I see it all the time. You’ve made your way to the top of the mountain … yet the ride down the other side can be a free fall: family conflict, entitled brats, a lack of purpose, not to mention the stress of investing the money, all await you. So my advice to you would be threefold:

First, get your asset structuring right. Super is still the best place for long-term investing. You’ve got til July 1 this year to potentially bring forward three years of after-tax contributions. After you’ve maxed out your super contributions, invest via a family trust. It allows you to protect your assets and distribute your income to minimise your taxes.

Second, keep your investing simple. Understand that to most financial advisers, your wealth makes you sexier than Kim Kardashian in the buff. Understand they’re just trying to fondle you with fees. Warren Buffett says: “Wealthy individuals … continue to feel they deserve something ‘extra’ in investment advice. Those advisers who cleverly play to this expectation will get very rich.” (Buffett famously plans to invest his wife’s entire inheritance in a no-brainer, low-cost, set-and-forget index fund.)

Finally, keep working. From this point on, earning more money won’t make you any happier. Having a purpose bigger than yourself will, though. You’re one of the richest people on the planet. Be generous. Good luck.

TIED IN KNOTS

NIKKI ASKS: We were stupid enough to take out a personal loan for our wedding. It has been eight years and we are still paying off this loan, mostly as we have refinanced it a few times to clear our credit card debt — and generally live beyond our means. We are now earning a combined $185,000 a year and have slowly changed our habits. In fact we will have the loan paid off by July and even quicker if we use the $6000 we have in savings. So should we use this savings to pay it off, or just stay on track for July?

BAREFOOT WRITES: Keep $2000 in Mojo and pay off the bloody loan. You’re clearing $11,000 a month. Stop sucking your thumbs and just do it. OK, so that was a totally predictable answer. However, I’ve included your question because more than one million people will read this column — and therefore there’s a good chance there are at least a few bridezillas reading this who are contemplating taking out a loan for their upcoming wedding. Don’t do it. It won’t make your day any more special … but it will make the next 2920 days more stressful. Just ask Nikki.

SWITCH MOTOR OFF

TOM ASKS: My wife and I are in our late 20s. She doesn’t really like talking about money or investing — she is more interested in spending and having holidays. However, she is getting a lot better after seeing what we have done together with three negatively geared properties over the last few years. I have $30,000 in savings, which was going to be for a Harley-Davidson. But after reading your book and signing up to the Blueprint, I am considering putting this into shares for the long term. My wife does not know I have this $30,000 in cash. I would like to surprise her in many years and show her what I have done for us. Am I best to invest it all into the share market this year? Or to invest a certain amount over, say, the next 10 years?

BAREFOOT WRITES: Wait! You do not get to collect $200. You can’t have a $30,000 stash and keep it secret from your wife, cobber. Here’s you: “Cobber, yourself. She doesn’t give a rats about money … I’m looking out for the both of us.” Here’s me: “Yes, but you’re also co-signing her up for loans and exposing her to risks she doesn’t fully understand.” Look, I don’t doubt you have her best interests at heart — though I’m still puzzled how you were going to explain where you got the dough for the Harley. But the fact is, there are three risks to your little plan that could blow up your marriage: First, you fall off your motorbike and she’s left with no freaking idea what to do, or how to handle money. Second, it doesn’t work out the way you hope, and she blames you for it. Third, you end up resenting her for not contributing. Let me get a bit personal: when my wife and I got married, she was (initially) more than happy to leave the money up to me — I’m the Barefoot freaking Investor, after all. But I wasn’t happy to do it. Instead, I created the ritual of a monthly Barefoot date night where I explained our plan, on the back of a serviette, and, early on, taught her about the general concepts of investing. We now both have an equal say on what we’re doing with our money. The result is that it’s brought us much closer together. It will for you too.

Read more Barefoot Investor:

What to do when you've lost everything

Bad taste lingers after GFC financial loss

What Amazon means for Australia

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The Barefoot Investor holds an Australian Financial Services Licence (302081). This is general advice only. It should not replace individual, independent, personal financial advice

Originally published as Scott Pape: What to do when you're suddenly rich