Timothy Daniels | Managing Your Exit Wealth

Mental Models, Performance, Business & Entrepreneurship | newsletter.scottdclary.com

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Managing Your Exit Wealth

In the years spent slaving away at our passion projects, we often fail to plan for the best-case scenario. What if your hard work does pay off? What if you join the 10 percent and launch a successful startup? 

Managing the wealth you receive from an exit is just as important as the hard work you put in to get there – but we don't often talk about it. Maybe it's because everyone figures, "You're rich. You're set. What more do you need?"

In reality, wealth brings with it a unique set of challenges and opportunities. 

Maybe you're on the brink of a successful exit as we speak. What are your plans for your newfound wealth? Without a path forward, it's incredibly easy to mismanage your resources, leaving you worse off than before.

Let's unpack some of your options when it comes to managing all that brand-new, hard-won cash. 

How Will You Spend Your Exit Wealth?

As a society, I think we're used to seeing the rich and successful spend their money on fancy cars and boats and designer bags. There's nothing wrong with that, of course; to the victor, the spoils. But it's just one of many options.

I'm writing about this today because of a chat I had with Timothy Daniels over on my podcast. He's the President and Chief Executive Officer (CEO) of TIGER 21, the premier peer membership organization for high-net-worth wealth creators and preservers.

His members have worked very hard for their money – and they're not interested in blowing it. They want to make sure they manage their wealth responsibly and enjoy its benefits for years to come. If possible, they'd like to make a philanthropic difference, too. 

Timothy explained that his organization provides a way for wealthy individuals to make educated financial choices. They can bounce their plans off one another, receive advice from informed peers, and access a community of like-minded people. 

It made me realize that there's a whole community of 'overnight millionaires' out there who are suddenly faced with a big financial responsibility – and if they're not part of a group like TIGER 21, they're probably wondering what to do next.

The Basics of Wealth Management

I want to jump into some specific tips for entrepreneurial wealth management, but I'm sure we'd all benefit from a quick refresher on wealth management before launching in. 

Wealth Management is Life or Death

Let's face it – we'd all like to rocket our way through life, neglecting the future and living fully in the present. But retiring comfortably isn't something you can rely on; it's a phase of life you need to set the foundations for at a fairly young age.

I read somewhere that 37 percent of Americans don't have a retirement plan of any kind. That's pretty scary, considering life is only getting more expensive and less predictable. 

Wealth protection is about valuing your future self enough to plan for your eventual comfort. That means getting the right insurance policies, investing wisely, and saving what you can. 

Wealth Management is Caring For Family

Of course, we don't all have the luxury of providing for our kids' college education or gifting our parents a comfortable retirement. But there's a much better chance of doing so if you're protecting and managing the wealth you've got. 

Wealth Management is Philanthropy

Once you're in the position to do so, philanthropy can be an incredibly rewarding way to use your wealth. It's not just about donating money; it's about having a real impact on the world and helping those who are less fortunate than yourself. 

Thinking about philanthropy makes me feel hopeful for the human race. You've got people like Paul Tudor Jones, who's been supporting impoverished families in New York for 30 years; Warren Buffet's given almost $50 billion to charities at this point and has pledged 99 percent of his wealth to philanthropic ventures. 

Philanthropy is a win-win situation. It's good for the soul, and it's good for the world.

When Exit Money Comes Along

Now, depending on the size of your exit, the money that suddenly hits your account post-exit is enough to quell all your money fears (and then some). It's easy to lose sight of the future because you're living large in the present. 

But getting that lump sum isn't just a key to living your best life now. It is an unparalleled opportunity to set your future self up with a life of financial comfort and security. 

Still, even if you're ready and willing to manage your wealth properly, the options are a little... overwhelming. Should you invest? How much, and where? What portion should be put away in savings? And what about insurance, taxes, and retirement plans?

Don't get me wrong – I'm not a wealth advisor, nor am I a financial expert. I'm not going to give you the hottest takes on investing, and I can't put a number on how much you should save vs. spend. But I can prompt you in the right direction with a few choice pieces of advice. 

Don't Manage Your Wealth Alone

You might be an absolute gun when it comes to running a business. Well, you clearly are – you've got an exit under your belt. But that doesn't mean you're going to be a natural when it comes to managing your wealth. 

Exit money calls for expert help. It's time to hire a few people who really know their stuff, and let them help you make the most of what you have. 

Financial Advisor: A financial advisor will be able to guide you through the process of allocating your funds in ways that best protect, grow, and use your money. They can also answer questions like whether or not it's worth investing in stocks right now, how to go about setting up retirement plans, and which types of insurance policies are worth getting.

Accountant: Accountants aren't just there for tax time – they can provide valuable advice on managing assets year-round. An accountant with an eye for wealth management can help you understand the tax implications of investments, provide cash flow analysis and help you manage your debts.

Lawyer: A lawyer can help protect your wealth by ensuring the right contracts are in place. They'll assist with things like setting up a trust or estate planning; both options may be worthwhile considering if you're looking to pass on your wealth to future generations. 

Sound like overkill? It won't feel that way a few years down the track, when your wealth is well-protected and you're living comfortably. 

Be Cautious Of Those Closest

I hate to say this – I really do. When you're the recipient of sudden wealth, people are going to treat you differently if their personality is on the materialistic side. And sometimes, those people are your family or friends. 

Many of us have financial planners in the family, but believe me when I say that hiring someone objective is best. Wealth is a tricky thing; it's alluring, life-changing, and seductive. You can't always know how people will act around it.

I'm sure this doesn't have to be said; don't make your net worth a topic of conversation. Your wealth is your own affair and it doesn't concern anyone aside from you and your advisors.

Consider Every Present and Future Expense

Thinking about buying a house? A boat? That apartment in the Caribbean you've been dreaming of? Well, you probably can. But before you take the plunge and commit to anything, there are a few things to consider:

  • Are your assets liquid enough that a large purchase won't put them at risk? 

  • Have you factored in the costs associated with ownership (insurance, taxes etc.)? 

  • Is this an item or experience that will bring value to your life for years to come? 

  • Will it be more beneficial than investing those funds elsewhere (e.g. in stocks)? 

These are all important questions to ask yourself before you make any big decisions with your exit money. It's always better to be conservative and cautious; there will still be plenty of opportunities for fun and luxury purchases down the track once you've established a solid financial foundation. 

In establishing that foundation, you should be considering every present and future expense you're likely to face. Are you hoping to provide for a family sooner or later down the track? Perhaps it's wise to think about a family savings fund. Have you factored in retirement planning? Insurance? 

The trick here is taking the time to brainstorm every financial consideration, present or future. You're not going to cover it all with this one exit, but it's beneficial to plan for contingencies and long-term goals now.

Diversify, Always

You know the drill. Nothing good comes from putting all your money into one asset, unless you get lucky a second time (the first being your exit). Diversify as much of your wealth as you can – spread it across stocks, bonds, real estate and other investments. 

Volatility is not your friend when it comes to managing your exit wealth. I just finished watching the Gamestop Saga on Netflix – some of those investors lost everything they had. And you hear about new crypto scams every single day where people sink their entire life savings into a rugpull with good marketing

It's a wild west out there, and you don't want to be caught at the wrong end of it.

I'm not saying don't invest in anything new or exciting – investing is all about taking calculated risks. Just make sure that you have enough diversity in your portfolio so that if something goes south (which it eventually will), then you won't lose your entire net worth over night.

Prioritize Your Retirement Funds 

After a startup exit, retirement might seem like a lifetime away. But trust me when I say that now is the perfect time to put money into your 401k/super fund/retirement plan. 

Compound interest will work its magic with time on your side. If you have any leftover money after investing and diversifying, then make sure to put some into retirement funds for when you do decide to hang up your laptop for good. 

Think About Giving Back

I heard a mindblowing statistic the other day: elderly people who spend their time volunteering are 44 percent less likely to die than those who don't. There's a whole body of research around generosity, actually; regardless of how much you give, it makes you happier

I'm not saying your own happiness has to be the driving factor behind generosity – I'm just saying that there's a reason people do it. Could you use some of your exit money to support a cause that resonates with you? Or start your own foundation or nonprofit? 

Charities aren't always the most trustworthy, but it's possible to do some research and find a cause that's worthy of your support. Or, of course, you can start your own. 

The UN Office predicted that, in 2022, regions affected by disaster would need $41 billion in aid money, and 274 million people would need humanitarian assistance. There are causes unfought all over the world. Millions of people are displaced; countries are fighting for basic human rights; children fail to thrive due to starvation. 

It's humbling to think that your exit wealth could make a difference in any of these areas. It can drastically change someone's life – so it's worth considering how you might be able to contribute something. 

How To Lose Your Exit Wealth

It takes time and effort to manage your wealth properly – but if you'd rather not do the work, there are always plenty of people who would be glad to take it off your hands. 

Beware of shady investments and get-rich-quick schemes. Willie Nelson got slapped with the biggest tax fee in history because he bought into an illegal tax shelter, and he was paying off $32 million for ten whole years. If someone is offering you an investment opportunity that's too good to be true... then it probably is. 

Another great way to lose your exit wealth is to assume you're a 'responsible spender'. Maybe you won't buy a yacht on a whim, but failing to plan means you don't know what lies ahead. 

You could end up with a huge tax bill, or you might simply run out of money sooner than planned. Even if you're not reckless, it's easy to underestimate the cost of living and overestimate how long your wealth will last. That's why planning for the future is so important – even if it seems like retirement is a million miles away. 

It doesn't take much effort to sit down and make an honest plan for yourself; taking control of your exit wealth can save you from making any costly mistakes in the future.

Wealth Doesn't Come To Everyone

As a successful entrepreneur, you're sitting on a pile of wealth that most people only dream about. And it's not like you've won the lottery; you had to work yourself to the bone for every cent. Honor the work you've done and the fortune you've earned by managing your exit wealth properly. 

The truth is, not everyone will be able to do the same – so don't take this for granted. It's better to put your affairs in order while every option is open to you. 

I hope this has been a useful little refresher on managing your exit wealth. Again, I'm not a financial expert or anywhere close to it – I'm just here to lend some words of encouragement. Always make sure to do your own research and certainly consult with a professional for the best outcome.

Thanks for being here!

If you enjoyed this article, I’d love to hear from you. 

Reply to this email or tweet at me @ScottDClary and I'll do my best to get back to everyone!



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