Facts and Fallacies About Creating Wealth

Many commonly accepted “facts” about wealth building are, in fact, fallacies.

Take these six as examples:

1. “Risk and reward are inversely correlated. If you want to acquire great wealth, you have to be willing to take great risk.”
2. “Wealthy people are stingy for a reason. Pinching pennies is a necessary part of building wealth.”
3. “The most important factor in building wealth is ROI — the rate of return you get on your investments. When investing in stocks and bonds, therefore, look for high ROIs.”
4. “A well-balanced investment portfolio is comprised primarily (80% to 90%) of stocks and bonds, with the rest (10% to 20%) in cash or cash equivalents.”
5. “The surest way to acquire enough money to retire is to buy the most expensive house you can afford and gradually pay off the mortgage.”
6. “Asset allocation is the single most important factor in building wealth.”

Those are the fallacies. Here are the facts:

Fact No. 1:

The intelligent wealth builder takes advantage of safe bets and avoids risky ones. He does this as an employee, a business owner, and an investor. He understands that smart financial decisions are cautious decisions. When he must take a risk, he does so with some sort of loss limit in place. He never loses more than he is comfortable losing.

Fact No. 2:

Spending money prudently is an economic virtue, but being stingy — i.e., paying less than market value for goods or services simply because you can — is a flaw. The rich man who undertips does so not because he has learned the value of money, but because he is simply a cheapskate. It’s as simple as that.

Fact No. 3:

The most important factor in wealth building is not ROI but the accumulation of net investible assets, the amount of money you’re able to devote to investing after you’ve paid for all your regular expenses — your car, home, debts, and loans. Plus, individual investors, chasing yield, typically get ROIs that are less than half those of market averages. This is why the intelligent wealth builder devotes the lion’s share of his wealth-building time to increasing his income and setting realistic goals for his stock and bond portfolios. By “reasonable,” I mean market averages plus or minus 10%.

Fact No. 4:

The typical portfolio of stocks, bonds, and cash — however allocated — is an inadequate approach to building and safeguarding wealth. The intelligent wealth builder will also include other assets, such as income-producing real estate, tangible assets, alternative fixed-income investments, and direct investments in cash-generating private businesses.

Fact No. 5:

Buying a more expensive home every time you get a big raise is a great way to ensure that you will never get rich. What you want to do is find the least expensive house you can “love long time” and keep it. The longer you keep it, the more net investible income you will have to invest in income-producing assets that will eventually make you rich.

Fact No. 6:

Asset allocation is indeed very important, but it is only one-third of a larger strategy that truly is most important. I’m talking about risk management. Risk management has three parts: asset allocation, position sizing, and loss limitation. The intelligent investor pays equal attention to all three.

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Four More Facts

Okay, those are six facts that dispel the common fallacies. Got a few minutes more? Here are four more facts, some of which are very basic but often ignored.

Bonus Fact No. 1:

The biggest mistake retirees make is giving up their active income.

Yes, I know that’s exactly what you hope to do. But to keep your wealth for a lifetime, you need multiple streams of passive income. Your goal should be to build each stream of income to a level where you can live on that and that alone.

Bonus Fact No. 2:

The “miracle of compound interest” applies not just to money but also to skill and to knowledge. If you want to get rich and stay rich, you need to invest as much of your spare time as possible in acquiring financially valuable skills and learning about your business.

As a general rule, buying makes you poorer, whereas selling makes you richer. If you want to develop a wealth builder’s mindset, develop the habit of asking yourself every time you buy or sell anything: Is this making me richer or poorer?

Bonus Fact No. 3:

Every type of financial asset has its own unique characteristics in terms of growth potential, income potential, and risk. Expecting more growth or less risk than “normal” from any investment is a bad idea. And that is why 90% of ordinary investors have results that are far poorer than market averages.

Bonus Fact No. 4:

There are two ways investments can build wealth. One is by generating income. The other is through appreciation — an increase in the value of the underlying asset. Asset classes are inherently structured to increase value, preserve value, or do both. Investments that provide both income and appreciation are generally superior to investments that provide only income or only appreciation. But in developing an overall strategy of wealth building, the prudent investor will incorporate all three types of investments.

You may find some of these facts instantly sensible. Others you may disagree with, be confused by, or see as unimportant. But don’t just read them and dismiss them, please. Give yourself a bit of time to think about them. For me, they are useful and important because they worked for me and for people I mentored — and they worked over and over again. Which means, of course, that they might work for you.$

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Choose Investments That Keep Risks Low And Profits High

“Be not penny-wise: riches have wings, and sometimes they fly away of themselves; sometimes they must be set flying to bring in more.” – Francis Bacon (Essays, 1625)

If you get up early and make good use of your time, you will have a higher-than-average income. If you commit to saving a significant portion of that extra income and check your net worth every month, your net worth will grow quickly. How quickly depends on three things:

1. how much you invest

2. how long you keep it invested

3. what rate of return you can get

The traditional idea about investment returns is that the more you want to earn the more risk you have to take. Today, I’d like to talk about how to get a higher-than-average return with much-less-than-typical risk.

Let’s start by assuming that you begin a 20-year wealth accumulation program with monthly savings of $1,000. Saving $12,000 a year should not be a problem for you even if you are starting out. I've shared many ideas in previous blog posts about how to increase your income.

Let’s make another assumption. Let’s figure that by working hard and smart you are able to increase that $12,000 by $3,000 a year. That is well within the reach of anyone committed to wealth building.

And finally, let’s assume you are 45 years old and have 20 years of income-producing years in your future. (If you are younger than that, the numbers I’ll show you will turn out to be much, much more favorable.)

Over a 20-year time period, putting away the savings mentioned above, the total “extra” income you’ll have socked away will be about $800,000. That’s not bad. It shows you the power of consistent savings.

Now let me show you the power of boosting your savable income. Let’s assume, again, that you started by saving $12,000 a year. But instead of increasing that amount by $3,000 a year, let’s say you add $6,000 — a modest $500 a month. In that situation, your accumulated savings will amount to about $1.4 million.

But let’s say you do better than that. Let’s imagine that your financially valuable skill allows you to increase the amount of money you can save each year by $12,000 ($12,000 the first year, $24,000 the second year, etc.). In that case, your 20-year saving spree will total $2,520,000.

Two-and-a-half million dollars is a lot of money. It would put you among the solidly wealthy. Not revoltingly rich, but financially independent.

You can definitely do that well by sticking to a straight money-building program. But the numbers I’ve cited so far do not include the effect of compound interest. They show what you’d get if you hid all that extra money in your mattress.

If you put all that extra money in long-term treasuries and earn an average of 3% interest over time, you’d have about twice the amounts cited above. If you could do better than that — say, 5% — you’d end up with four times that much. 7% would give you about five times that much. And 10% would give you about six times that much, or between $5 million and $15 million.

This demonstrates something you already know: If you can get your return on investment (ROI) up into the double digits and keep it there, you can get rich — even very rich. It’s not easy to get 10% over time, but I believe it can be done if you invest in businesses you know.

Start by dividing your assets into four categories:

1. your home

2. secured loans

3. passive investments

4. active investments

You know what “your home” means. “Secured loans” include Treasury bonds, municipal bonds, mortgages (that you give, not take), and highly collateralized private loans. “Passive investments” cover the kind of things that most people think of when they think of investing. This includes individual stocks, mutual funds, options, futures, etc. The final category, “active investments,” identifies any investment you make in a business in which you play an active, often controlling, role.

Because I’m a strong believer in “diversified” investing (balancing your investments so that you don’t have too much money in any one area), I make it a personal habit to try to have a substantial amount of money in each of these four categories. In fact, if you want my recommendation, I’d say you should have no less than 10% and no more than 40% of your money in each category. For planning purposes, you might want to start off with the idea that you’ll have equal value in each category.

For each of these categories, you need to reduce your risk and increase your potential return. The way to do this is the same for all four categories: Invest in what you know and keep learning about what you are investing in.

Let’s see how this applies to your home. To be sure that your home appreciates in value, don’t buy a house until you really know the local real estate market. Spend the time you need to scout around, to speak to people, to watch what’s going on. When you are confident you know the good neighborhoods, the up-and-comers, and the overvalued properties, do what the real estate pros recommend: Buy a modestly priced house in an good or up-and-coming neighborhood. 

The next category — secured loans — is an important but usually overlooked part of any wealth builder’s investment portfolio. Secured loans are wonderful because they pay a decent rate of return — higher than bank savings accounts — with virtually no more risk. To make things simple, I recommend tax-free municipal bonds. If you go for the safe ones — triple A — you’ll get about 4.75% return today. That equates to about 7% to 8% before taxes.

Next, you’ll want money in the stock market. For reasons I’ll tell you about later, I recommend that you select a balanced mutual fund that is meant to “track” the Dow Jones Industrials. Don’t mess around picking individual stocks or timing your investments (pulling them in and out of the market depending on economic conditions and other factors). Just put your money in and let it enjoy the historic 9% return stocks have given investors for 70 years.

You can expect your home to appreciate at least 5% a year — twice that much if you’ve done your homework and have gotten to know your local real estate market. You’ll get about 7% on your muni bonds (before taxes) and 9% from your mutual funds. That means that three-quarters of your wealth probably will be appreciating at an average of 7.5%

Figuring that rate of return into each of the savings levels we talked about before, here’s how your 20-year nest egg would grow:

* If you start with $12,000 a year, increase it each year by $3,000, and get a 7.5% return on 75% of your investments: You’d have  about $1.5 million.

* If you start with $12,000, increase it by $6,000 a year, and get a 7.5% return on 75% of your investments: You’d have about $2.5 million.

* If you start with $12,000 and increase it by $12,000 a year with a 7.5% return on 75% of your investments: You’d have between $8 million and $10 million.

What that means is that 75% of your savings will give you a 20-year net worth that will be higher than what you would have had if you had simply hidden your money away — and yet your risk would have been just as low. (Remember, hidden money can be stolen.)

What you do with the other 25% of your savings (the subject of another message) can make the difference between being financially comfortable, enviably wealthy, and disgustingly rich.$

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Are the Rich Smarter Than You?

“Well if you’re so damn smart, why aren’t you rich?”

I heard this question asked when I was young, and it ingrained in me the notion that the rich must have a little something extra going on upstairs, otherwise, we’d all be rolling in it. Right?

There is, in fact, some evidence to support this. According to a recent report from the U.S. Census Bureau, there is a strong positive correlation between income and education. Over an adult’s working life, on average…

• High school graduates should expect to earn $1.2 million.
• Those with a bachelor’s degree, $2.1 million.
• Those with a master’s degree, $2.5 million.
• Those with doctoral degrees, $3.4 million.
• Those with professional degrees, $4.4 million.

But here’s the rub. Studies show that those who earn the most aren’t necessarily the richest…

How to Determine Real Wealth

To determine real wealth, you need to look at a balance sheet – assets minus liabilities – not an income statement. According to the late Dr. Thomas J. Stanley, the bestselling author of The Millionaire Next Door and perhaps at the time the country’s foremost authority on the habits and characteristics of America’s wealthy. Many of his findings are just the opposite of what you’d expect.

For example, we generally envision millionaires as Bentley-driving, mansion-owning, Tiffany-shopping members of exclusive country clubs. And indeed, Stanley’s research reveals that the “glittering rich” – those with a net worth of $10 million or more – often meet this description.

But most millionaires – individuals with a net worth of $1 million or more – live an entirely different lifestyle. Stanley found that the vast majority:

• Live in a house that cost less than $400,000.
• Do not own a second home.
• Have never owned a boat.
• Are more likely to wear a Timex than a Rolex.
• Do not collect wine and generally pay less than $15 for a bottle.
• Are more likely to drive a Toyota than a Beemer.
• Have never paid more than $400 for a suit.
• Spend very little on prestige brands and luxury items.

This is certainly not the traditional image of millionaires. And it makes you wonder, who the heck is buying all those Mercedes convertibles, Louis Vuitton purses, and $70 bottles of Grey Goose vodka? The answer, according to Dr. Stanley, is “aspirationals.” People who act rich and want to be rich, but really aren’t rich.

Many are good people, well educated, and perhaps earning a six-figure income. But they aren’t balance-sheet rich because it’s almost impossible for most workers – even those who are well paid – to hyper-spend on consumer goods and save a lot of money. (And saving is the key prerequisite for investing.)

This notion shocks many Americans. During an Oprah appearance, Dr. Stanley was asked the following question from a member of the audience, one he’d heard hundreds of times before:

“What good does it do to have all this money if you don’t spend it?”

She was angry, indignant even. “These people couldn’t possibly be happy.”

Keeping Up With the Joneses and Smiths

Like so many others, this woman genuinely believed that the more you spend, the better life is. Understand, we’re not talking about people who live below the poverty line. (Clearly, their lives would be better if they were able to spend more.) We’re talking about middle-class consumers and up, those who often live beyond their means and then find themselves under enormous pressure, especially in a weak economy.

Some were overly optimistic about their earning prospects. Others didn’t realize that they are up against an army of the best and most creative marketers in the world, whose job it is to convince you that “you are what you buy,” that you need to outspend – to out-display – others.

The unspoken message behind the constant barrage of TV and billboard ads featuring all those impossibly good-looking men and women is that you are special, you are deserving, and you need to look and act successful now.

According to Dr. Stanley, “The pseudo-affluent are insecure about how they rank among the Joneses and the Smiths. Often their self-esteem rests on quicksand. In their minds, it is closely tied to how long they can continue to purchase the trappings of wealth. They strongly believe all economically successful people display their success through prestige products. The flip side of this has them believing that people who do not own prestige brands are not successful.”

Yet “everyday” millionaires see things differently. Most of them achieved their wealth not by hitting the lottery or gaining an inheritance, but by patiently and persistently maximizing their income, minimizing their outgoing, and religiously saving and investing the difference.

You Aren’t the Car You Drive or the Watch You Wear…

They aren’t big spenders. They just recognize that real pleasure and satisfaction doesn’t come from the car you drive or the watch you wear, but time spent on activities with family, friends, and associates.

They aren’t misers, however, especially when it comes to educating their children and grandchildren – or donating to worthy causes. Although they are disciplined savers, the affluent are among the most generous Americans in charitable giving.

Just how prevalent are American millionaires? According to the Spectrum Group, there were 8.39 million U.S. households with a net worth between $1 million and $5 million at the end of 2014. Very few of them won a Grammy, played in the NBA, or started a computer company in their garage. Clearly, thrift and modesty – however unfashionable – are still alive in some parts of the country.

So while millions of consumers chase a blinkered image of success – busting their humps for stuff that ends up in landfills, yard sales, and thrift shops – disciplined savers and investors are enjoying the freedom, satisfaction, and peace of mind that comes from living beneath their means.

These folks are turned on not by consumerism but by personal achievement, industry awards, and recognition. They know that success is not about flaunting your wealth. It’s about a sense of accomplishment… and the independence that comes with it. They are able to do what they want, where they want, with whom they want.

They may not be smarter than you, but they do know something priceless: It is how we spend ourselves – not our money – that makes us rich.$

[Do you know how Facebook and Google became the most powerful companies in the world?

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It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

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How to Stop Losing Half of Your Money and Live Without Worry

Every eight to 10 years, inflation cuts the wealth you have in cash by half.

The Bureau of Labor Statistics says the inflation rate has averaged 2.6% since 1990. In fact, it’s at least twice that much. And it could be four times that much…

You see, in 1990, the government changed the way it calculates inflation. It conveniently removed certain costs from the Consumer Price Index calculations. Those included the prices of fuel and other commodities.

If you use the older, more credible government calculation, inflation for the last 20 years would average 6.5% per year. And according to the American Institute for Economic Research, it is actually closer to 8%!

An inflation rate of 8% means that $100,000 in cash today will be worth only $46,319 in 10 years. That’s more than half its value, gone.

In 20 years, it’s only worth $21,455. In 30 years, it’s worth an abysmal $9,938.

What can you do to protect yourself?

When most people think about arming themselves against inflation, they think in terms of investing: investing in hard assets and high-quality companies that can charge more for their products as their cost of goods increases with inflation.

They are great inflation hedges. But will this “Wall Street strategy” really help you?

Sure, but not nearly as much as Wall Street would have you think. That’s because they protect only a tiny part of your overall cash flow.

Let me ask you this: What percentage of your income do you save every month?

If you are like most U.S. citizens, you save a paltry 5.8% of your income. Put differently, Americans spend an astonishing 94.2% of their income.

When you are spending 90%-plus of your income every year, it is difficult to protect yourself against inflation. This is because investment hedges (such as the ones I described) benefit only the cash you put into them.

Let’s use some numbers as an example to make the point clearer.

Say you earn $100,000 of income. And let’s say you’re fortunate enough to save 20%, or $20,000. You put it in a traditional inflation hedge, such as gold or real estate.

Next, let’s say inflation spikes 10% in one year. We’ll assume that means your inflation hedge will increase by the same amount. If your inflation hedge rises 10%, it will increase your overall net worth only by $2,000.

And that’s if you save 20% of your income. Remember, the typical American only saves a little over 5%.

I hope you’re beginning to see how Wall Street’s laser focus on nothing but inflation-hedge investments is incomplete. It’s kind of like going to the emergency room for a broken leg, but the doctor insists everything will be OK if he just Band-Aids the scratch on your leg.

What’s the answer, then?

When I sit down with new clients, I tell them something that very few in the investment world say:

“You cannot hope to get wealthy by investing alone.”

You need to base your foundation of true wealth building on

• increasing the proportion of your income that you save and
• increasing your income.

These same strategies are also the solution to beating inflation.

Think about it: How can you grow wealthy when 80%-plus of your costs are going up because of inflation, yet only 5% of your income is in an inflation-protected asset? How can you grow wealthy when your boss gives you only 3% yearly cost-of-living wage increases, but inflation is rising at 5%?

The truth – the boring-yet-powerful truth – is that the two most effective ways to combat the pernicious effects of inflation are to decrease the amount of money you spend every year and to increase the amount of money you earn.

I have lots of ideas on how to spend less… You might see them in a future essay. But today, I’d like you to follow me for a moment as I use an analogy…

Imagine a water faucet pouring into a bucket. Your goal is to fill the bucket. But in the bottom of the bucket, there is a large hole that’s leaking water.

You probably know where I’m going with this. The faucet is your income – filling the bucket (your wallet) – and the hole in the bottom of the bucket is inflation – draining it.

Just spending less and saving more would be like trying to put Scotch tape over the hole in the bucket to stop the leaking. It will help, but you’re still going to lose a lot of water. You’re still losing to inflation. What now?

Then we turn to focusing on how much water is pouring out of the faucet.

In other words, you need to increase your active income. You need to make sure your active income is increasing at the same rate as the inflation rate, if not faster.

For every drop of water leaking out of the hole, you need at least a drop – if not more – pouring in from the faucet.

There are two primary ways to do this.

One, you become so valuable at your current job that your bosses reward you with a higher salary.

What could you do that would set you apart from the other employees? What could you do that would truly add value for your boss or the company? What actions could you take today that will get you noticed as valuable and irreplaceable?

I’ll give you a hint. Your job is to produce long-term profits. In other words, your job is to help your company make more money.

The secret to getting above-average raises each year is to accept that as your fundamental responsibility – and to transform the work you are doing now in such a way that it will produce those long-term profits.

To achieve this, do everything in your power to become the most valuable person in your company. Arrive early. Work hard and work smart. Volunteer for projects. Take initiative. Become the “go to” person for ideas and solutions. Become indispensable.

That way, your boss (or even your boss’ boss) will reward you with bigger raises and compensation (pay raises that are at least as much as the annual increase in inflation).

The better you can do it, the more money you will make. It’s as simple as that.

If increasing your salary from your primary job isn’t a possibility for whatever reason, you must focus on the second way of earning more income: finding or creating a new stream of income.

There are many ways to generate extra income. Working a second job. Freelancing… consulting… blogging… copywriting…Uber... the possibilities abound.

But the key is to begin looking right now. Start a Google search. Make a phone call to ask questions. Set up an informational interview to learn more about a possibility. The point is, take action.

As I have explained many times, “There is no faster or surer way to become wealthy than by creating extra income and allocating it toward one’s investments.”

Wall Street declares that you can beat inflation by simply investing in the right kind of assets. And yes, while that is important, that strategy alone will not beat inflation.

The best way to combat and beat inflation is to spend less and earn more.

I can promise you this: A month after you start implementing the strategies I showed you today, you will feel much better about the threat of inflation.

And as time passes, you will be able to sleep comfortably at night. You’ll know that you are immune to inflation’s malicious effects.$

[Do you know how Facebook and Google became the most powerful companies in the world?

It’s NOT helping you share pics of last night’s dinner...
It’s NOT searching for drunken cat videos…

And it’s DEFINITELY NOT about free Gmail accounts.
 

The simple truth is Facebook and Google SELL TRAFFIC.

They SELL TRAFFIC to business owners, and that advertising revenue alone has turned them into billion dollar companies.
 

Traffic is the most valuable commodity on the internet, and that will never change.
 

This is why using the Traffic Authority business system is the ultimate way to make extra income in your business…
 

Click here to watch the video and start your own premium traffic business today!]

How to Talk About Money in Your Marriage

A female client once told me that she got her money the old fashioned way: by divorce.

It’s a funny line that reflects the traditional thinking of the man as the breadwinner in a marriage and the source of family wealth. But the truth is that times have changed.

Today, many women have more financial assets than their male partners. More young women attend college than young men. And although the glass ceiling still exists, more women are building successful businesses and excelling in high-level careers than ever before.

Plus, traditional inheritance traditions have changed. Today, parents tend to leave their daughters and their sons an equal amount of the family wealth.

But money and the changing dynamics of family wealth aren’t easy topics to talk about in relationships. People are more reluctant to talk about money than almost anything else… including their sex lives. It’s a tricky and revealing topic of discussion.

A Failure to Communicate

Think about how much you can learn about someone by asking them about the importance of money in their life and what purpose it serves. The answers to those questions cut to the core of a person’s values.

And having those discussions is essential if you want to have a successful marriage.

A couple of years ago I met Marilyn and Jeff. They’re a middle-aged couple with money as the root of their marital problems. Marilyn lived off a trust fund from her parents. She resented Jeff because she had more money than he earned at his job. She didn’t like paying for the majority of their living expenses. Jeff felt emasculated because he wasn’t earning enough to keep up with their lifestyle.

Marilyn and Jeff didn’t talk about their needs, values or how they felt. They grew distant as their problems festered. Their inability to communicate about the most relevant issue in their relationship damaged their mutual respect and their intimacy. It also deeply damaged their relationship.

Money may be the hardest topic for couples to discuss even though it’s one of the most important.

Ceding Control

In my experience, some women still want to feel taken care of financially. Our society still holds that a man is financially responsible for his wife and children. But often these cultural expectations are out of synch with the achievements and positions of women — especially in the homes of the wealthy.

Women can also become dependent on their wealth for their sense of identity and their social position. Their self-esteem is grounded in their affluence rather than in their accomplishments. So they hold tightly to their money. They fear that if they lose it, their value as a person will be gone as well.

Some women still believe they can’t support themselves, especially if they have inherited their wealth. So the fear of losing their money and becoming a “bag lady” results in stinginess. They are less generous in philanthropy and more tight-fisted in divorce. I once had a client who was worth more than $100 million and was married to a man with almost no assets. At the divorce, she begrudgingly left him with only a used car and a studio apartment.

But women who cede control by turning their money over to their husbands to manage aren’t helping themselves either. Women need to learn how to handle their own money and make important decisions about expenditures, investments and estate plans.

Bearing the Burden

In our culture, it’s accepted that men bear the burden of bringing home the bacon. But when a man marries a woman with greater financial wealth and higher social class, the union is often looked down upon by the woman’s family and society.

Husbands often feel powerless, embarrassed, judged and controlled when their wives have more money than they do. We know intellectually that people should not be defined by their money. But our culture often gives us the opposite message.

This can be hard for men to accept. They begin to question if they’re inadequate. They wonder if they’re not ambitious enough. It plays havoc with their self-esteem, even when they have successful careers.

I once had a wealthy friend whose daughter married a man of lesser means. My friend was sensitive to the potential self-esteem issues of his son-in-law. He felt his daughter had all the power in their marriage. Often the spouse with the most money exerts the power and makes the major decisions. My friend did not want to see that dynamic ruin his daughter’s marriage.

In an act of enormous generosity, my friend signed over a considerable asset to his son-in-law. But this newfound wealth led the son-in-law into a life of cocaine addiction and an eventual divorce. The son-in-law waltzed into the sunset, taking his father-in-law’s money with him.

Five Steps to Make It Work

Acknowledging and discussing financial inequality and the changing dynamics of family wealth are the key to overcoming these issues. Most affluent families don’t talk about money at all. So this may seem like a tall order. But it’s the path to happy and healthy marriages and families.

A couple I know — let’s call them Carrie and Bill — made it work. Carrie started a business with her first husband and her family money. When they divorced, she kept the business and soon met Bill, a retired social worker. Both Carrie and Bill recognized the potential problems if they ignored the glaring differences in their financial resources.

They began their marriage with constant communication. They shared their thoughts on money and what it meant to each of them. They had frank discussions about the balance of power between them and how they would handle decision- making. They spoke honestly about their working relationship and their titles within the company.

The result? They became successful business partners and intimate marital partners. Twenty-five years later they sold their company for $80 million and continue to respect and enjoy each other today.

Bill and Carrie’s behavior is the same as other wealthy couples I’ve encountered who have forged successful marriages by acknowledging financial differences and communicating about money instead of choosing the destructive path of denial.

From those experiences I have come up with five steps you can take to talk about money in a healthy and productive way in your marriage.

1. Share your feelings and experiences. Set aside time to talk about your thoughts about and experiences with money. Listen to each other!

2. Uncover family values about money. Discuss and examine your inherited values about money, power and success in an open way. Be aware of how power is used in your relationship.

3. Discuss how you can make decisions in an even-handed, inclusive and respectful way.

4. Explore how money can add meaning to your lives. Share what matters most to you and use your wealth to pursue your passions.

5. Maintain a sense of humor. Laughing and enjoying each other are the best ways to maintain a healthy relationship.$

The Most Powerful Asset Protection Tool in the World

The wealthiest families in the world utilize a powerful legal tool to protect their assets. More important, it can be used by people who are in the process of building wealth. People like you.

The tool is called transference. In particular, “risk transference.” Risk transference:

1. Identifies the risk of incurring a loss.

2. Measures the risk.

3.  Assigns part of the risk (typically the riskiest part) to a third party.

When you buy a car, you insure it against loss due to an accident. In this case, you are transferring the risk to the insurance company.

When you incorporate a business, you transfer your liability to a separate entity. If, for example, you’re a plumber, this means your personal assets would not be at risk if, say, you dropped a heavy pipe on someone and they filed a lawsuit or lien against you.

As a homeowner, you could transfer the risk of losing your home by placing it into a living trust. This gives you an additional level of protection – above and beyond your homeowner’s insurance.

For example, if a neighbor were critically injured by a rock thrown by your lawnmower, they could sue you. And your personal assets could be at risk. But if your property were in a living trust, it would no longer be considered your asset. That puts it out of reach.

Multi-national corporations utilize risk transference all the time.

A disaster like the Exxon Valdez oil spill could have ruined the company. But Exxon was protected, to a degree, because some of its assets had been placed into a trust or holding company.

When the owners of the New York Yankees wanted to build a new stadium, here’s how they applied the risk transference tool:

1. They identified the risk. In this case, it was the cost required to build and maintain the stadium.

2. They measured the size of the risk. In this case, it was about $1.5 billion.

3. They assigned the riskiest part of the investment – the cost to build the stadium – to third parties by issuing tax-exempt bonds. And they assigned the second-riskiest part – the cost of ongoing maintenance – by making a deal with the City of New York to pick up a chunk of the plumbing, heating, cooling, security, grounds maintenance, taxes, etc.

I’m not a Yankees insider, so this may not be exactly how the deal went down. But I’m sure it’s pretty close.

There’s something else the wealthy understand about risk transference that you can take advantage of …

Most people believe the wealthiest families in the world are focused on accumulating as many assets as possible. This may be true some of the time. But in many instances, they accumulate assets and then release the rights to them.

Here’s what I mean …

Wealthy entrepreneur Ted Turner is the largest landowner in the United States. He owns about 17 ranches in 10 states. In New Mexico alone, he owns more than 1 million acres. According to some reports, his properties have been set aside in a living trust. The trust will eventually revert to the Turner Foundation, an Atlanta-based organization with the goal of preserving the environment.

And get this. Turner and his family will continue to have full access to those assets.

Here’s another example …

On the coast of Maine, there is a long-standing conservation land trust that now encompasses Acadia National Park. It was formed by John D. Rockefeller in the 1920s. The trust ensured that no one would build or develop land around the Rockefeller compound. It also ensured that the donated property would never be abused in some way. But that was secondary to the primary purpose of the trust: risk transference for the Rockefeller family.

And another example …

A group of 19 wealthy entrepreneurs shrewdly capitalized on Colorado’s conservation laws by acquiring ranch land and putting it into a conservation land trust. The trust protects the land from developers, and the tax benefits are utilized to offset expenses. Meanwhile, the entrepreneurs maintain the use and enjoyment of their asset.

And another example …

Billionaire John Malone (#162 on the Forbes Richest American list) purchased about 7,500 acres of pristine property in Western Maine on Spencer Lake. He already controlled about 8,000 acres in the area, and this acquisition gave him complete ownership of the lake’s shoreline. The investment was placed into a trust.

You can transfer the risk of losing just about any asset you can think of – vacant land, your home, your business, vehicles, your savings account, your IRA – by placing it into a separate legal entity or trust. Any competent attorney can help you. You might also want to check out LegalZoom.com, a valuable online legal service.

Let’s say you purchase 50 acres of land adjoining a National Park. You could release the rights to some of that property – in particular, the public access areas – to the park. You would still enjoy the property and the view as much as before. But now you’ve released the rights to the areas that are most at risk for liability claims.

Or let’s say you own a small fishing camp in Wisconsin. It consists of a few buildings, 10 acres of land, a dock, two boats, and a waterfront easement. You could place all these assets into a living trust. Then, if you were sued personally or if your business were sued, the assets would be protected. The trust, not you, would legally own them – though you could continue to use them to the fullest.

A living trust is one of the best ways to enjoy the benefits of risk transference. In most cases, you would appoint yourself as “trustee.” This would give you the legal right to sell, build, develop, or reassign the assets in the trust any way you see fit.

I’m not rendering legal advice, here. You’ll need to check with an experienced attorney for specifics. But I think you will find that risk transference – especially as it relates to trusts and incorporations – is a powerful asset protection tool. And not just for the wealthy.

If you’re intrigued by this tool, you may be interested in hearing about more of the wealth preservation tools and tactics I’ve discovered. Stay tuned to this blog for future posts.$

Seven Years to Seven Figures was created with one goal in mind: to bring groundbreaking ideas for wealth creation and preservation to individuals who are seeking better, smarter ways to make money. If that sounds like you … look into it.