posted January 05, 2004 02:05 PM
STREET WISE
By Amey Stone Getting Rich -- And Staying That Way
[Page 2 of 2]
3) Pay attention to taxes: It's one of the great truisms in life: Meet a rich person, and you'll find someone obsessed with taxes. Sure, the rich do pay a lot of money in taxes, but they actually fork over a much smaller percentage of their wealth each year than the average working stiff (again, they can thank the Bush Administration for more help here). Still, it's not by accident. They work at it.
Lately the wealthy are spending a lot less time trying to figure out how to cut their estate taxes -- and more time worrying about property taxes and other state fee hikes. That's because estate taxes are in the process of being temporarily phased out over the next 10 years (and may be phased out permanently after that). Meantime, property values are skyrocketing, which means higher real estate taxes. At the same time, cash-strapped states and towns are raising all sorts of fees on residents. Here's a tip: A lot more vacation properties may be on the market soon.
4) Get good financial advice: One way to stay rich is to delegate financial management to trusted experts. They'll do things like diversify your investments and reduce risk -- all those things you didn't do when you were making the money but that you need to do now if you want to be sure of holding onto it.
A lot of 1990s' day-traders had to go back to desk jobs as a result of not following this rule. "Now that the market is doing well, you may fool yourself into thinking you can manage your own money again," says Randy Scritchfield, a financial planner in Montgomery County, Md., and a member of the MDRT (Million-Dollar Round Table), an association of high-earning financial planners. "But if you're human, you'll use emotion and make bad decisions about very rational things."
Getting good legal and tax advice also helps the rich hold onto their assets through future generations. Here's another truism to ponder: "When you have someone who has built up an estate, their progeny is typically going to do the opposite," says Scritchfield. But usually the third generation reverts back to the wiser habits of the first.
"Trusts are a way to sort of get you through that spendthrift generation and on to the next one." That means if you've got more than a few million to leave to your heirs, you might want to set up a trust that will parcel out the money over time, estate taxes or not.
5) Don't get bad financial advice: This corollary to the previous rule is equally important. Wonder how celebrities lose their riches? Typically, it's at least partly because they got bad financial advice.
"Once you're rich, it's like a game of Chutes and Ladders," says Luskin. "You have to watch out for the chutes" -- like falling under the spell of a financial adviser who's either unscrupulous or incompetent. "One thing the people who stay rich figure out is how to pick these guys."
6) Invest in your kids' education: It's still possible in this country -- although very rare -- to get rich without having a good education. But staying rich is much, much harder without one.
Education offers lots of important intangible benefits for both getting ahead and learning to appreciate it when you do. But cynical as it may sound, at the top rungs of the societal ladder, a real dollars-and-cents value also adheres to not only attaining an advanced degree or two but also attending the best in private schools.
"One of the ways the rich stay rich is making sure their kids go to school with other rich people so they get networked in," says Luskin. That means they get invited on ski trips to Aspen with boarding school chums as well as get hired at white-shoe investment banks once they graduate from the Ivy League. "The real purpose of a Harvard education is to meet other people who have Harvard educations," says Luskin.
So send your kids to private schools or at least to public schools in the best neighborhoods. Make sure they study hard, and then ante up for the best in private colleges. It may seem like that's a quick way to the poorhouse. But think of it like a good insurance policy. That way, even if you don't manage to hang onto your fortune, your kids will have built up one of their own and can support you in the manner to which you're accustomed by the time you're ready to retire.