Money Management & High Net Worth Horror Stories
How to Manage Your Money (money management tips) – See Real Examples of What Can Go Wrong
Money management begins with financial planning. You cannot separate the two, even – as you’re about to see – for ultra-high net worth clients. If you have over $10 million in liquid investable assets and want help with money management, start with this guide.
Affluent people regularly call our office to discuss their situations related to money management and investment issues, and just about every time, the root of the problem relates to financial planning.
We’ll look at a couple of these callers in a moment, as well as the basics of money management for high net worth investors and what you should do next.
STRATEGIES FOR FAMILIES WORTH $5 MILLION TO $500 MILLION
7 Secrets To High Net Worth Investment Management, Estate, Tax and Financial Planning
The insights you’ll discover from our published book will help you integrate a variety of wealth management tools with financial planning, providing guidance for your future security alongside complex financial strategies, so your human and financial capital will both flourish.
Clients frequently share with us how the knowledge gained from this book helped provide them tremendous clarity, shattering industry-pitched ideologies, while offering insight and direction in making such important financial decisions.
But first, if you have a liquid net worth between $5 million and $500 million and want to discuss your own money management or financial planning situation, you can set up a quick introductory call with one of our founding wealth managers, Hutch Ashoo, or Christopher Snyder. Both have over 30 years of experience managing money and investment funds for high and ultra-high net worth clients.
If you’re not quite ready for a call, get a clearer picture of our approach to investment performance with our free guide, Improving Portfolio Performance.
Or, check out a complimentary copy of our hardcover book on wealth protection, The Art of Protecting Ultra-High Net Worth Portfolios And Estates: Strategies for Families Worth $25 Million to $500 Million
You can also get help choosing a financial advisor using our free guide, The Ultimate Guide for Choosing the Best Financial Advisor for Investors with $10 Million – $500 Million Liquid Assets.
Let’s get started.
What Is Money Management?
Money management refers to all facets of dealing with the finances of an individual or group. Money management activities include budgeting, saving, spending, and investing.
Financial stability depends on good money management, which includes having good spending and saving habits and making wise investments.
Money management also includes managing an investment portfolio.
Understanding Money Management
In the markets, money management encompasses investment management, which means investing in and monitoring investments in all the available asset classes (mutual funds, ETFs, stocks, bonds, etc.).
With today’s technology, if you’re looking for help with money management, you can take advantage of a finance app or a robo advisor.
Money management companies offer investment services to individuals as well as corporations, foundations, retirement plans, and institutions.
Top Money Managers by Assets
1. BlackRock Inc.
BlackRock was founded in 1988 by Larry Fink. It has $10 trillion in assets under management, equivalent to 40% of the US GDP, making it the world’s largest asset manager. The company is headquartered in NYC.
BlackRock has over 18,000 employees in 36 countries. The company offers investment services to individuals and families. It manages assets for schools and non-profits, pension plans, insurance companies, and governments.
The company has 20+ years of providing index investing and ETFs. Its IShares platform has over 1,250 ETFs, managing over $2 trillion. It rolled out its digital advisor in 2020.
2. The Vanguard Group
The Vanguard Group was founded in 1975. It is based in Malvern, PA, and has about $7 trillion in assets under management. It has almost 19,000 employees. It is the world’s second-largest provider of ETFs after BlackRock’s IShares.
Vanguard works with individual investors, retirement plans, institutional investors, and financial professionals. The company is particularly well-known for its low-cost investing.
3. Fidelity Investments
Fidelity, founded in 1946 in Boston, MA, where it has its headquarters, has $4.5 trillion in assets under management. Fidelity operates a brokerage and manages a large group of mutual funds, for which it has a strong reputation.
A Fidelity account has no fees and $0 commission trades, and there is no minimum to open an account. The firm offers robo-advisor solutions and digital advice combined with human advice when needed.
PIMCO is a leader in fixed-income investments, in particular, the Total Return Fund. The company offers mutual funds, ETFs, interval funds, managed accounts, closed-end funds, alternatives, and ESG investing.
PIMCO was founded in 1971, and in 1975, it became one of the first investors to use mortgage-backed securities in its client portfolios. It has become one of the world’s largest commodities managers.
PIMCO strongly supports active investment and is the world’s largest active ETF manager.
5. Invesco Ltd.
Invesco is headquartered in Atlanta, GA, has branches in 20 countries, and was founded in 1935. The company holds over $1 trillion in assets under management.
Invesco’s investment vehicles include mutual funds, ETFs, unit investment funds, insurance funds, and customized solutions. Its capabilities range across major equity, fixed-income, and alternative asset classes.
According to the 50/30/20 rule of budgeting, you should spend 50% of your budget on essential needs and obligations, 30% on wants, and 20% on saving or paying down debt.
Money management comprises the activities involved in overseeing the finances of an individual or group, including financial planning, spending, saving, and investing.
The best way to manage your money is to have a financial plan, which includes budgeting, savings, and debt management. It’s important to save for emergencies as well as retirement.
First, establish your financial goals. Control your spending and save more. Track your expenditures to create a viable budget. Have a plan for eliminating debt, and control credit card use.
This rule states that you should not spend more than 80% of your income. Then, you should allocate 10% to savings and 10% to charitable giving or allocate 20% to savings and investing.
Money management is important for financial well-being, which means living within your means while working toward your financial goals, such as saving enough for a comfortable retirement.
Managing your finances means you are working toward your financial goals; you have control over your spending and increase your savings; you have a budget and are able to stick to it.
One version of the golden rule of money management is to never spend more than you earn. In other words, spend less, save more, invest, and plan for the unexpected.
The main areas of money management are budgeting, managing expenses, and saving. Eliminating debt would be a major goal, and with some accrued savings, investing would also be important.
The types of money management include budgeting, retirement planning, investing, paying taxes, managing debt, and estate planning—performed by an individual or with the help of a financial planner.
An Ultra-High Net Worth Money Management Failure
We had someone call our office after finding our website. She is a CEO who, with her husband, had about $30 million in liquid assets. They had chosen to work with a particular money management firm after interviewing three of them because they liked the advisor there.
Things were going well. But when her company got bought out in a merger, she found herself with a $50 million windfall that would soon be coming her way.
She realized that her current advisor wasn’t going to be able to deliver what she needed. Why?
Because she and her husband had big plans, but they didn’t know if they had enough money to pursue them. They wanted to launch a film production company with $10 million upfront and support it with $2 million more annually. They were only in their mid-40s. If they never worked again other than at their production company, was their net worth of $80 million enough to fulfill their dream of producing movies?
This is REAL money management. Can you live comfortably for possibly 50 years, with $80 million, if you want to start a company for $10 million and support it with $2 million annually?
Their advisor couldn’t answer this question.
They came to us, and we ran a Wealth Management Analysis (WMA). It takes their goals and dreams, incorporates their liquid assets, and creates a money management plan that includes investments with different levels of risk.
To their great surprise, their plan failed.
Here’s what that means: With $80 million in their mid-40s, they could not confidently fund the lifestyle they desired along with their film production ambitions. Something would have to give. So we helped them adjust their plan, re-evaluate their goals and desires, manage the emergency fund, and re-run the Wealth Management Analysis. The second time, it passed.
Now, generally, people with $80 million in liquid assets don’t tend to think of themselves as needing financial planning. But as you can see – they did. It was essential. And we have clients where situations like this come up all the time.
We feel our main job is to help our clients make educated and smart decisions that feel right to them; which actually includes not doing anything if that’s what feels right. We help our clients figure out what they really want to do with their money, show them options on how to accomplish those goals, and then let them pick the approach that feels right to them.
Money management isn’t about an abstract level of performance. “I want to earn 9%.” Why? Based on what? Who cares? Money management is about implementing and monitoring an investment plan so that you can securely live the life you want and achieve all your most cherished goals, dreams, hopes, and plans.
Another Example of Poor Money Management from an Affluent Household
Here’s another story of an ultra-high net worth person who called us after reading our website. He was 60 and nearing retirement, and had about $60 million in liquid assets, along with several hundred million in property investments.
His current financial advisor, accountant, and lawyers were happily taking their fees to manage all this money. His property managers were happily being paid to manage his network of real estate rentals.
But no one – NO ONE – was telling him about the terrible future that awaited him:
If he continued on this course, when he dies, his heirs would owe more money in estate taxes than he had in liquid assets. His entire $60 million fortune would not be enough to cover the federal and state estate taxes that will come due. They would have to sell some of his property just to pay the tax.
If they wanted any actual money to come to them after his passing, his heirs would have to sell even more property, thus eliminating this as a source of income for themselves.
Do you see how outrageous this situation is?
How could you have this army of advisors and tax experts, and none of them are telling you about this enormous black cloud that will turn into a violent thunderstorm the day you die?
So, all the amazing “money management” his advisor is doing with this $60 million is utterly worthless. All that money – all of it – will be gone in an instant, to pay the estate tax.
This sort of thing gets under our skin. Why? Because there are ways to protect those assets from the estate tax. But you have to take those steps while you’re still alive. This is a core component of the hardcover book mentioned earlier, The Art of Protecting Ultra-High Net Worth Portfolios And Estates: Strategies for Families Worth $25 Million to $500 Million.
You would do well to read it.
The Basics of Money Management
In case you need a little help getting up to speed on money management, this is about avoiding recklessness and being smart about your future.
There are basic tasks associated with managing your money, such as using credit and debt wisely and having a diversified array of investments and a smart asset allocation. But before you get into any specifics, understanding money management begins with three principles:
No matter how much you make, don’t spend more than that. Even if you make $1 million per year, if you’re spending $1.2 million per year, you are losing money. And eventually, it will catch up with you. You must prioritize the goal of making more money than you spend.
During the Covid-19 pandemic, several Airbnb investors found themselves in hot water because they had bought up tons of properties. When the pandemic hit and fewer people were traveling, they found themselves unable to pay all these mortgages. They were spending more than they were making.
Don’t do that.
Your financial plan should dictate your investment plans. Budgeting is a basic skillset of money management. Investing is an advanced skillset. Who you listen to, and what you do in good times and in bad times determines your long-term financial security. Here are 5 critical shifts for maximizing portfolio growth for ultra-high net worth investors.
3.Build for the future
Why should you make more than you spend? Because the future is uncertain. Saving and investing are the only way to take control of your own destiny and build for the future life you want, for you and for whoever comes after you. Good money management depends upon a commitment to save money, for future purposes that will be outlined in your financial plans.
5 Fundamental Steps to Help Manage Your Money (money management tips)
What can you do differently from the people you read about earlier? Here are five steps to better money management.
1.Know your objective – financial and lifestyle
We’ve seen people with over $100 million still living like average people, even in their 80s. Why? What is all that money for if you’re not going to use it? And if you want to pass it on, why haven’t you built estate plans? Money management without a purpose is a waste of time.
2.Have a plan
With your objective clarified and specified, the next step is to build the plans that ensure you will achieve them. A goal without plans is just a wish.
3.Stick to your plan
Making some plans are great, but when life throws you a curveball, how will you respond? You must continue to avoid overspending. You may need to make a few adjustments to ensure your lifestyle and financial objective remain achievable. So don’t set your plans on autopilot and just assume it will all turn out fine 20 or 40 years later.
4.Track your data
It’s hard to know how to respond to life’s changes if you aren’t paying attention to the data. The Wealth Management Analysis tool we use can be re-used, over and over. For our clients, we re-run the Wealth Management Analysis every quarter to ensure their long-term objectives and desires are still on track to be fully provided for.
5.Work with a professional
Whether it’s Pillar Wealth Management or someone else, you’ll do much better by working with an expert who can deliver the financial peace of mind – what we call financial serenity – that you want.
You can get help finding the best possible financial advisor for you by getting The Ultimate Guide to Choosing the Best Financial Advisor, for Investors With $10 Million to $500 Million in Liquid Assets.
Reasons to Use a Money Manager
When most persons talk about money management basics, they refer to the tasks mentioned earlier, like managing debt, saving money, investing, diversifying, having bank accounts. Those sorts of things. And that is part of it.
But as you’ve seen by now, achieving the financial serenity you want requires much more than that. Whether you work with just a money manager, or a wealth manager who offers the additional services you’ve been reading about, here are a few reasons to work with a professional:
-You don’t have time
-You don’t have the expertise
-You want maximum performance
-You want financial serenity – lifelong peace of mind
a debt management plan to avoid the worst scenario at credit card debt
Professional money management skills, money management techniques, and management skills
Put all those together, and the reasons to work with a professional are clear. Gaining the expertise it would take to truly secure your future requires even more time, and you don’t have time just to manage what you have now.
Ascertaining if you are positioned to achieve all your objectives and desires requires much more than simply shooting for an arbitrary percentage of annual growth. If you hit that percentage two years in a row, then miss badly in a third-year because of a recession, what does that mean? Does it matter? Has it jeopardized your long-term goals and plans?
How do you know?
And what is ‘maximum performance’ in this context?
Answering these questions on your own, and then solving them again on your own, is a prohibitively challenging task for most.
How a Money Manager Works
At a basic level, here’s what you can expect when you engage with a firm like ours:
You’ll begin with a 15-minute introductory call where we get to know basic information about each other. If either party sees something they don’t like, this is where it will end. The next step would be a longer call, what we call a Discovery Call. That’s where we talk about your goals, desires, and dreams lively or via text messages.
From there, we are able to run a Wealth Management Analysis for you. This is the defining document that Pillar’s team can produce. It is unlike anything you will get from any other firm. Go ahead and test us on that if you think we’re exaggerating. It’s smart to consult with more than one firm.
Once we get to work, we’ll create the plans that are built to manage your money and investments so that your desires and goals all get achieved. ALL of them.
That’s the mark of good money management plans. The goals determine the plans. The plans do not get created based on abstract ideas about annual growth without context.
From there, we balance your performance against risk to maintain optimal long-term performance. We create the ideal asset allocation that will facilitate that performance, spreading your assets among equities, bonds, credit cards, cash, discuss your savings goals, and other investment securities.
With money management like this, you are not betting your future on the stock market. Putting your long-term hopes and dreams, as well as your retirement, on the line like that is not sound money management, and it’s not what we do.
How Is a Money Manager Paid?
Money managers usually get paid a percentage of the money you hire them to invest for you. A typical starting percentage is 1% of assets under management. For higher net worth clients, often this percentage will be lowered according to the interest rates.
Fees can be simple, such as that described above. That’s how Pillar Wealth Management sets up our fees. A single fee that is all-inclusive and covers everything to put you away from any risk in the future and prevent you to become the victim of poor finances-management.
Fees can also be complex, as well as devious.
Remember the couple with a budget of $80 million who wanted to start a film production company? When we looked into their numbers, we found something quite disturbing.
To be 100% transparent, we published this page to help filter through the mass influx of prospects, who come to us through our website and referrals, to gain only a handful of the right types of new clients who wish to engage us.
We enjoy working with high net worth and ultra-high net worth investors and families who want what we call financial serenity – the feeling that comes when you know your finances and the lifestyle you desire have been secured for life, and that you don’t have to do any of the work to manage and maintain it because you hired a trusted advisor to take care of everything.
You see, our goal is to only accept 17 new clients this year. Clients who have from $5 million to $500 million in liquid investable assets to entrust us with on a 100% fee basis. No commissions and no products for sale.
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