I recently had the pleasure to hear Brian Herd talking about Elder Law. His opening statement fascinated me. He said, the biggest risk to people’s wealth was a ‘do nothing mentality’.
According to Brian, 60% of people have never made a will. When they die, the courts decide who receives the money and the laws of the court are almost certainly not going to allocate your inheritance the way you want it. In addition, even more people do not have an enduring power of attorney or a living will. This means that if you lose the physical or mental capacity to manage your affairs, the court will appoint someone to do this on your behalf. Again, the person appointed may not be the person of your choice or the best person to manage your affairs efficiently.
Why you need a financial plan
Brain gave lots of examples of how not having a will had resulted in detrimental effects for a person’s inheritance and how often the benefits of the estate ended up going to the wrong party. For example, in one case, the beneficiary was bankrupt so the creditors took all the money and in another the daughter was separated and the ex-husband claimed half the inheritance in the property settlement.
Did you know that if you reach the age of 85, you have a one in two chance of suffering dementia? In the case of not having an enduring power of attorney, a wealthy woman who owned a large private company had a public trustee appointed to manage her affairs. This resulted in falling profitability for the company and the loss of value for the beneficiaries of the will.
The ‘do nothing mentality’
Everyone knows they need a will and an enduring power of attorney and yet people still do nothing. If you don’t have these documents prepared, you are putting your life’s savings at risk. I urge you to take action today.
Another important statistic is that 80% of people don’t have any written financial plan. This is in spite of research that shows that 85% of people think that they need a written financial plan. I think there is probably two reasons for not having a written financial plan and they are the same reasons people have not written a will:
1. The ‘do nothing’ kind of people
The first reason is that they are a ‘Do Nothing’ kind of person. There never seems to be something which says, ‘I must get my will written today’. Likewise, they never jump out of bed and say to themselves ‘I must get my financial affairs in order and write a plan’.
2. Preparing a will can be costly
The second reason is the cost of drawing up a will. It is always easier to find something else to do with the money. When it comes to a financial plan, most people are not at the point where their income or investments require the services of a financial planner, who will prepare a substantial and important document for around $3,000. For most, they simply have to work out how much they want to save each year, how they will manage their debts and what kind of assets should they invest in. Until now, apart from financial planning services, there has been no professional level planning tools for the DIY person.
A research project once found that in a group of Harvard business school students starting their course, only 20% of the group had a written financial plan. Twenty years later, those 20% of the group, had 80% of the group’s wealth.
This is a call to action. If you want to be in the 80% group, start today by making a financial plan. Any plan is better than no plan. Remember, the wealth you build while working will dictate your living standards over the twenty to thirty year period of your retirement.
Financial Mappers now gives everyone the opportunity to make and test those plans for as little as $9.90 a week.
Disclaimer: Financial Mappers does not have an Australian Financial Services License, does not offer financial planning advice and does not recommend financial products.