The importance of Teaching your children how to invest and thrive for the future.
Part 7: what the wealthy do differently
Today we continue to explore the way people with generational wealth think, we call this “old money” how does old money think?
If we want To know how to build generational wealth, then we need to look at how people with generational family fortunes think.
1. Spending – Not Cool
Give a million dollars to an average person, and he/she immediately thinks of what it will buy. But give a million dollars to an old-money family, and it goes into a business… an investment… or a new entrepreneurial venture. Big difference!
What matters for old money is producing, not consuming. We don’t want to consume goods and services. We don’t want to consume information and ideas. We don’t want to consume Wall Street’s fee-stuffed “HNWI” (high net worth individual) products, either.
Let others drive their fancy cars, carry their expensive handbags, and have addresses in the chic ZIP codes. Old money doesn’t show off by buying things. It prefers to keep a low profile… and a low cost of living.
It knows that investment costs have to be kept down, too. And the best way to do that is to avoid hedge funds and structured products. Stick with simple, low-cost, long-term investments.
2. Spending the Family Fortune – Even Less Cool
“Never touch the capital” is a long-standing rule and a hallowed tradition among old-money families. You may spend the interest on the family fortune – even the capital gains it produces. But woe betide the heir who draws down the principal.
The principal must be kept intact. Any distributions should be of interest, after taxes and inflation adjustments. At today’s low interest rates, it is hard to earn much income – safely – from your investments.
Families are tempted to “dip into capital” to make ends meet.
Once you begin living on a previous generation’s savings, you will find it hard to stop… until the family fortune is all gone.
“Eat only what you kill” is a better way of expressing the taboo against spending family wealth.
It allows you to spend only what you make yourself. The earnings from capital go back into the family fortune, replacing losses from inflation and taxes.
3. Doing What Others Do – Not Cool
Most people want to fit in. They seek social approval by doing what other people do. But if you do what other people do, you will get the results that they get. You will become average – just like they are.
Having wealth is rare. Having it for more than one generation is rarer still. You don’t do that by doing what other people do. You have to think more clearly… and avoid many of the ideas, values, and habits that most people have.
You must be willing to be different.