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Healthy Financial Behaviors for High-Net-Worth Individuals

Healthy Financial Behaviors for High-Net-Worth Individuals

January 08, 2024

Healthy Financial Behaviors for High-Net-Worth Individuals

For high-net-worth individuals (HNWIs), implementing healthy financial behaviors is crucial to maintaining their assets and growing wealth. Regardless of having significant financial means, embracing healthy financial behaviors must extend beyond simply making money or amassing wealth. Here, we outline strategies and behaviors that are important not only for building and maintaining wealth but also for promoting financial well-being.

The first fundamental behavior is embracing financial education. People with a basic understanding of financial concepts are more confident and are more likely to achieve their financial goals. Financial education is as simple as exploring online resources, personal finance webinars, using online tools, or working with a financial professional.

Next, living within your means is crucial. Even though a HNWI may have significant assets, they may overspend occasionally. Living within your means and having a budget promotes a healthy attitude about money and is part of a robust financial foundation.

Third, diversification of investments must go beyond spreading out reserves across different asset classes. To objectively diversify, HNWIs may consider investing in various regions and sectors or diverse asset types, such as real estate, private equity, treasury bonds, and other suitable investment strategies to help mitigate risk. However, it’s equally important to remember that diversifying for diversification only may not be beneficial; investments must align with the individual’s financial goals and risk tolerance.

Using digital tools to develop a financial strategy and manage wealth is vital for HNWIs. Investment portals, budgeting software, and online banking apps help provide transparency to view and manage assets 24/7 effectively. 

Relying on professionals can help HNWIs reduce financial stress. Financial, tax and legal professionals can help reduce the burden of understanding changes in tax codes, estate laws, or investment strategies that align with their goals. Working with these professionals can help HNWIs develop healthy financial behaviors, too!

Tax planning is another essential factor for HNWIs. Reviewing your tax situation can help you identify any potential tax-saving opportunities. Basing investment decisions on both the immediate implications and long-term tax consequences is imperative. Working with experienced tax professionals who understand your situation can guide you through tax-efficient strategies such as tax-loss harvesting, charitable deductions, and tax-deferred retirement accounts.

Creating and periodically revising an estate plan is another key component of healthy financial behavior. An updated, comprehensive estate plan helps ensure that HNWIs can pass their wealth to the next generation while minimizing the effects of estate taxation. An estate plan generally includes assigning trustees, updating beneficiary designations, and considering potential inheritance tax implications.

Charitable giving is a popular and rewarding practice among HNWIs and can be a strategic tax-planning strategy. Donations to qualified charitable organizations can often be deducted helping to lower the taxable income of HNWIs.

Planning for longevity is yet another significant aspect of financial management for affluent individuals. As life expectancy increases, so does the necessity to save and plan for those additional years. HNWIs should consider the potential for rising healthcare costs, long-term care needs, and lifestyle expenses when planning for their financial future.

In conclusion, healthy financial behaviors are pivotal for HNWIs, various types of planning, seeking advice from financial professionals, and executing recommendations. By implementing these behaviors, HNWIs can potentially preserve and grow their wealth while aligning with their lifestyle and goals.

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.

Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

This article was prepared by Fresh Finance.

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