07 Aug What is Your Gift Capacity?
One of the best things about being a wealth advisor is helping people understand what their money can do for them and the world. It is a difficult undertaking, as it requires prospection and careful evaluation of the risks and opportunities.
The younger a person is, the harder the exercise. However, for people who have emotionally moved to the top of Maslow’s pyramid, few things in life reward more than using your resources to make the world a better place.
Answering the Question
Step 1: Determine Your Needs, Wants, and Wishes
This involves identifying goals and ranking the importance of each. Distinguishing between needs, wants, and wishes is an effective way to categorize. The key is assigning dollar amounts and time frames to each goal. Your job is to think about the fun stuff, and your financial planner’s job is to evaluate all the risks and make sure you’re covered. Once the financial analysis is done, this money is segregated into a pool of assets that will fund your lifestyle and retirement.
Step 2: Future Optionality
Psychologists say our interests change every decade or so. Do you have a second, third, or fourth act in your future? Will these acts require capital? Do you want to start a business? Perhaps you want to invest in start-ups or help a friend with a business idea. What opportunities might come your way? Do you think you’ll want to pay for family vacations with your children and grandchildren down the road? Is that a paid trip to Hawaii every year for 20 people? The younger you are, the more money you should set aside to preserve optionality.
Step 3: Children’s Needs
Figuring out education funding needs is easy, estimating what children may need in the future is hard. For example, do you want to pay for weddings, help with a down payment on a house, buy them a car, supplement their income, help them start a business, be a safety net as things come up, etc? What if your child becomes disabled later in life, but they failed to buy disability insurance? Would you be a backstop? Probably. Clients typically segment education funds into 529 plans and use trusts to set aside money for other potential needs. Even if you identify what you would like to help with, you then must deal with the difficult question of whether financial support helps or hurts their life.
Step 4: Grandchildren, Parents, Siblings, Extended Family, Friends
Do you want to help your grandchildren with education? Do your parents have adequate long-term care coverage? Are your siblings doing well or having financial troubles? Do you want to help your nieces and nephews? What about friends?
Step 5: What Impact do You Want to Make?
Some clients start with this question. Focus on issues that really matter to you, that you want to fix. Unfortunately, this will take some time as you’ll want to get educated about issues and what organizations are already on the case. I’d highly recommend getting to know a Donor Advisor at your local community foundation, such as at the Seattle Foundation. Ideally, consider hiring a specialist to help you sort all this out, such as Sarah Hopper at Sound Philanthropy Advisors.
Step 6: Consider Hiring a Therapist or Coach
I’ve been working with a therapist for five years, and it has helped me see things much more clearly. For some, a wealth & life coach like our own John Christianson1 is just what’s needed to sort these things out relatively quickly. At a minimum, have these conversations with your financial planner.
The Payoff is Enormous
If you’ve read this far, you understand why so much money is sitting in accounts doing nothing (and I’m not talking about returns). Making the most of your money is challenging work. These are tough questions that require considerable time and energy to answer. Since much is unknown, you do the best with the information you have. Then, you can confidently make a sizable gift to a Donor Advised Fund or your own private foundation. And, the earlier you start on this, the earlier that money can grow in a tax-advantaged way, providing even more impact.
In my experience, clients that have done this work are light years ahead of those that haven’t in terms of their clarity and peace of mind. Decisions that were once hard are easy. One of the best things is they live life on their terms. It may seem like people with excess money have all the options in the world, and that in fact is the issue. Without doing this work, shiny objects can overtake what’s important. Before long, all that money gets tied up and they have less gift capacity than some of my lowest-net-worth clients. Do yourself a favor and be very intentional with your time and money. You might just find that you have much more to offer your family, friends, community, and the world than you ever imagined.
You might even inspire others to follow.