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Saturday, May 18, 2024

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How to Leave a Financial Legacy That Lasts

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70% of financial legacies are lost by the second generation. Can you ensure a lasting financial legacy? (Spoiler alert: Yes you can).

It’s easy to lose money. There’s the lifestyle creep, there’s unexpected expenses, children who need ‘loans’, inflation, scams, and life in general. But, there are also ways to ensure that you keep your money in your metaphorical pocket, and in your family for generations to come.

Because that’s why we are here—to make our children’s lives better than ours. Imagine how much they can achieve if they are debt free, with great financial habits. No-one wants their kids to be in debt, trying to decide if it’s better to have an overdue electricity bill or their kids wearing too-small shoes for another month or two.

Take a few simple steps to help your descendants avoid making money mistakes, and create a positive money legacy that lasts, and that is bigger than you.

1. Plan and Make Goals

‘Aim for the moon, and if you miss, you’ll reach the stars’. What tripe! The stars are an extra 2.4 light years away, so much extra effort and far from your plans. Aim for measurable and achievable goals, and you’re more likely to meet them.

Create short and long-term goals and use a financial adviser to help you map out how you’ll get there. You need to have a plan for yourself, your spouse, children, and anyone in the wider community you want to support. Do you have a charity or community that you want to give your legacy to?

You must put your needs first at all times. There is no point giving money away to your children or grandchildren if you find yourself unable to pay the power bill. Plan for your retirement.

2. Think About Your Family’s Quirks, Personalities, and Dynamics (and Yours)

Everyone has their own attitudes to money. Some people are spenders, some are savers, and there are often clashes between people about these money attitudes. While we think about these fights in terms of our spouses, it happens inter-generationally too. If you are a saver and your child seems to think money grows on trees, you have a problem.

Money attitudes and habits are largely inherited. If your kids are still young, you can influence them. If they are older and set in their ways, you need to think about this when planning your finances, bequests, and inheritance.

Take into account the relationships between family members too. Have a will that is fair and spells out all your wishes clearly. You truly cannot predict how people will react once you die, and there are often family disagreements and rifts after a parent passes away. If you, for instance, leave the family home to be equally shared, you may need to spell out exactly how this looks.

3. Communicate, Educate, and Create a Legacy of Knowledge

Some people think that money is good, or bad, or distasteful to talk about. Ditch those ideas now. Money is simply money. And if you don’t talk about it, you are doing yourself and your family a disservice.

Schools don’t teach your kids enough (or anything at all) about finances. Kids understand the basics from three years old, and their money attitudes are set by seven years old, so start with very basic concepts from a young age. By the time they are teenagers, they should understand:

  • Budgets
  • Compound interest
  • Debt management
  • KiwiSaver
  • Investing
  • Loans and mortgages

If you can, involve your child/ren in your planning and goal setting, so they know exactly what is going on with your situation, but also learning from a professional (and reducing the chance of learning bad habits from you).

Once your children have their own children, they should equip them with the skills you taught them.

4. Invest in Your Children

The very best thing you can do to ensure long term financial wellbeing in your children is equip them with exactly what they need. This can include:

  • Helping them buy their own house
  • Paying for their tertiary education, as higher education is positively correlated with higher income
  • Paying off their student debt (although this is a 0% interest loan so do get financial advice about this)
  • Gifting or loaning money to start their own business

Create a Financially Secure Future for Your Family

Legacies don’t happen by accident. They are created with thought, patience, and education. They are the by-product of planning (and some luck). If you want to stack the odds in your favour, contact Sam Kodi today. Sam Kodi can help you set your goals, and plan for your family’s future.

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