It’s always a good idea to have long-term wealth goals, but there are things that will impact your plans! For the most part, there is little you can do other than learn to manage money, investments and wealth. From taxes to poor diversification, here are some to be aware of.
The career path, income structure and profession you choose all impact your wealth. Most people work long hours for low pay and put their spare money into savings and pensions in the hopes of a good retirement. Buying a home is also a top goal for most individuals and couples. Yet even the best mortgage broker is beholden to the economy and inflation rates. These can substantially impact the long-term value of your wealth without the proper management.
Those Ever Increasing Taxes!
Okay, the big one! Taxes are a nightmare, and it seems like they increase every month. From the food you buy to your savings, grubby government hands are always looking to take as much as they can however they can. When it comes to long-term wealth, there’s not a lot you can do to avoid taxes, not legally, anyway! Capital gains, income and dividend taxes frequently lower your returns. You can get around some of these with ISAs and efficient planning to offset taxes.
Long-Term Wealth Goals are Impacted by Timing
Recent figures suggest that 60% of billionaires inherited their wealth. However, the people who initially earned the money often attribute success in large part to timing it right. For example, Uber’s success comes largely from launching at the height of the smartphone launch with built-in GPS. Planning is essential if you want to build a financial legacy that lasts your lifetime and beyond. However, investment timing is a key strategy for making the most of the markets.
Poor Diversification of Investments
A hidden stash of cash under your bed doesn’t do anything for you. In fact, it loses value because of inflation. That’s why smart people make their money work for them. Investments, ISAs and pensions put money to better use. Of course, there are risks, but the rewards typically beat inflation and poor economies. However, you can’t put all of your green eggs in one basket. A healthy long-term plan includes a diverse portfolio across various types of common assets.
Managing Finances and Debt
The cost of living does nothing to help your short-term situation and can put a massive dent in the plan for long-term wealth. Educating yourself about how finances work, such as credit systems and making informed investment decisions is a key strategy for long-term wealth. However, getting into bad debt can cripple these plans. Reducing debt as soon as you can will help free up more resources you can use for a better quality of life now and sound investments.
Summary
Inflation and economic factors can impact long-term wealth goals. Of course, some would argue that timing is also a critical factor that can make or break your plans. However, you are responsible for your money and what it does. Managing debt and educating yourself is critical.
Bad things happen to good people. With our
society becoming increasingly litigious, people could be looking for any reason
to sue you for what you have. Consequently, the importance of protecting one’s
assets cannot be overemphasized. It is important to understand that asset
protection is not about evading your debts by defrauding your creditors,
rather, it is about preserving your hard-earned/inherited wealth from financial
predators and frivolous lawsuits. The following are ten asset protection
strategies you should consider using to protect your wealth.
1.
Utilize Business Entities
If you are an entrepreneur, you must separate
your personal assets from your business assets. If you do not take the
necessary steps to create separate business entities such as limited liability
companies, corporations, or limited partnerships, a business dispute could see
you lose everything.
Some business entities to consider include:
Sole proprietorship. This entity
offers no limit on personal liability. A mistake could see you lose everything
you own.
General Partnership. This is
even worse. You do not have to be involved for you to lose your assets. If your
business partner has a personal dispute with someone else and they go ahead to
lose that lawsuit, your assets will also be on the line.
Limited partnership. This is
better because if your business partner gets into trouble, only the investment
you have made into the business will be at risk. As such, they cannot come
after your personal property.
Corporation. This provides
excellent protection for your personal assets. If your business loses a
lawsuit, your personal property will not be at risk unless it is a case of
fraud.
Limited liability Company. An
LLC has provisions that keep a creditor from acquiring the company or its
assets.
2.
Increase Your Liability Insurance
Liability insurance should be your first line
of defense against any potential litigation. Liability insurance protects you
from lawsuits made against your business for real or alleged injuries that
occurred at your place of work. These injuries include actual physical ones
that occurred as a result of tripping and falling, defamation, or employees
claiming wrongful termination. If you just received a settlement or
inheritance, consider increasing your liability limit. It would be wise to
obtain a personal umbrella liability coverage that is equal to or more than
your new net worth. Make sure you get it before receiving the settlement or
inheritance.
3.
Utilize Retirement Accounts
Federal law offers unlimited asset protection to Registered Retirement Savings
Plans in case of bankruptcy. However, the
amount in assets that is protected differs between provinces with some
providing more protection than others. Look into the laws in your province to
see how much protection you can get from using retirement accounts.
4.
Create An Irrevocable Trust
You can further protect yourself from
creditors by use of trusts. The most effective type of trust is the irrevocable
trust which implies that the trust terms cannot be modified after it has been
created. And when you transfer assets to this trust, they will no longer be
considered yours but as properties of the trust. As such, creditors cannot go
after these assets.
5.
Homestead Exemptions
There are provinces which provide protection to home equity.
This means that if you declare bankruptcy, the law will prohibit the court from
awarding home equity to your creditors. Nevertheless, the amount of home equity
protected varies between provinces. Some protect an unlimited amount while
others provide very little protection in the event of bankruptcy. Look into
your province’s laws so you can be sure about this.
6.
Place Some Assets In Your Spouse’s Name
If one spouse’s occupation or lifestyle is
risky, then it is wise to have some of their assets in the other’s name. In
most cases, the creditors of one partner are not allowed to reach for the
separate properties of the other. Therefore, marriage can be used as an asset
protection strategy whereby valuable assets are held as separate property of
the partner with the least exposure to risk. It is in such cases where
prenuptial or postnuptial property agreements are beneficial.
Nevertheless, it goes without saying that you
need to be careful when implementing this strategy. While it is an effective
way of protecting your property against creditors, it will have serious
implications in the division of assets if you were to divorce.
7.
Annuities And Life Insurance
Certain provinces offer a significant amount
of protection to annuity balances and assets in cash value life policies.
Again, each province has its own laws regarding this.
8.
Consider Tenancy By The Entirety
Some provinces allow you to title your
personal residence as tenancy by the entirety. The implication here is that if
one spouse gets sued, the property cannot be attached to or separated by the
lawsuit. Another good thing about utilizing this strategy is that it is
statutorily based. This means that you do not have to pay large sums of money
to implement and maintain the designation. The important thing here is to
ensure that your property is properly titled. If your province allows, this is
an excellent way of protecting your home. A real estate lawyer can guide you
through the process. You can learn more here.
9.
Avoid Flaunting Your Wealth
There is a reason why the majority of lawsuits
are filed against people with deep pockets. Flashing your cash is an invitation
for financial predators to sue you. Remember, ostentatious displays of wealth
breed more jealousy than admiration. It is better to be rich than to look rich.
10. Do
Not Wait To Protect Yourself
You cannot begin implementing the above
strategies when a lawsuit is imminent. This will appear suspect to the courts
and they might prohibit you from transferring your funds into protected classes
thus leaving your assets exposed. As such, start implementing these moves as
early as you can.
The above is by no means a comprehensive guide
to protecting your assets. There are a lot of intricate factors surrounding
this topic because each case is different. The most important thing is to take
action before your wealth is threatened.
