The Plan

This post is an overview of the current “The Plan”. The one that will carry the family forward for the next…well hopefully couple, three generations. Like all sensible plans there is no expectation that it will survive contact with The Enemy.

The objectives are:

  • Manage and Grow Wealth
  • Minimize Family Friction
  • Maximize Synergy
  • Honor Founding Couple

The way the plan attempts to achieve this is through a Family LLC that holds the family wealth and is run by the descendants of the original founding parents. The model is the Walton Enterprises LLC which serves as the holding company for the vast fortune from the Wal-Mart empire.

Our fortune is far far more modest. Even more so if evenly divided among my three kids, and their kids, and so forth. Even well managed fortunes can disappear from dilution over generations which is why you often hear “Shirtsleeves to shirtsleeves in three generations”. This is probably less of an issue today with smaller families but still a valid concern.

Still if my three kids have three kids of their own then our 4th generation blossoms from 1 heir in the 2nd to 9 in the 4th. Divide a million bucks 3 ways isn’t too bad. Divide it up 9 ways and it’s barely a down payment on a condo.

So between inflation and dilution family fortunes must grow a lot just to stand still. Every generation has to add to the pot if the family is to maintain wealth.

I will say it’s likely a heck of a lot easier when the core financial holding generates $2B a year in dividends (Walton Enterprises owns around 1.68B shares of Wal-Mart which pays about $1.21 per share in dividends) but as long as you add to the core until it reaches a critical mass my assertion is that even modest families like mine can create something with legs.

My parents left me a nice sum…and fortunately my wife and I have already made and saved enough for our own retirement so I have the luxury of saving it rather than needing to use it for myself. Rather than divvy it up into 3 smaller chunks my intention is to keep it together and add to it.

The kids will end up with control of money rather than access to money. If they can work together then the result will be greater than the sum of the parts. The control of wealth will provide indirect benefits for them while the distributions will provide extra serfs to help them build their own FIEFdom without depleting the core wealth…but build their own FIEFdom they must do themselves.

Managing and growing wealth is going to be rather simplistic…and that will be the next post…

Books!

So if there are no blogs really talking about multi-generational wealth (if you find one let me know) how do we do any research? Turns out there are these things called books…

So here’s a list of what I’ve read (or at least started reading) in the past year. These are ordered more or less in the sequence I read them and not in any order of preference. I may do detailed book reviews later but I’m just going sum up the general impressions I got from reading them and a few “best practices” I’ve gleaned from them.

Generational Wealth Books

  • Crazy Rich Asians trilogy by Kevin Kwan
  • Wealth Grow It and Protect It by Stuart E. Lucas
  • Beyond the Grave by Jeffery L. Condon
  • The Living Trust Advisor by Jeffery L. Condon
  • Good Fortune – Building a Hundred Year Family Enterprise by Dennis Jaffe

The Crazy Rich Asians entry is a bit of a joke but the story line is about inherited wealth especially the last book. I won’t do any spoilers but the plot in the third book resolves around mysterious terms of a will and is probably the biggest lesson all the other books talk about: communication and transparency. Crazy Rich Asians (or the aptly named third book Rich People Problems) is NOT the way to go.

Communication with succeeding generations is the key takeaway for…as Jaffe puts it…building a hundred year family.

Planning is useful…probably more from the perspective of Eisenhower’s quote “plans are worthless, but planning is everything” than in terms of how reality actually unfolds.

More important is instilling a “mission” for the family beyond just accruing more wealth…something that will help keep the family together through shared values.

None of the books provide step by step cook book answers on how to build multi-generational wealth that lasts…especially for those of modest wealth. But they do give useful advice and guidelines. Of these I think the Jaffe book has resonated the most with me since there are a lot of accounts from members of successful families and compiled the list of best practices in a table. Many of there appear in Lucas book as well.

A lot of the stuff doesn’t apply for my family (we don’t own a family business) and some of the best practices aren’t required for this generational transfer (G1.5 to G2) but likely I will implement them anyway just as scaffolding for the next generation. Technically I’m Generation 2 but as an only child many of the to the G1 to G2 issues such as sibling rivalry didn’t apply but is something my kids and kids will have to deal with and also with their grandkids. It’ll be there as a fallback they can modify to meet their changing needs in a world I can’t imagine or plan for in 2020.

Plans are useless, planning is everything…that’s the purpose of the family enterprise structure I hope to build. My personal goal, which is different from the To Be Determined family mission, is to provide the financial infrastructure to give my descendants a lasting FIEFdom.

Finally here’s a quick list of other financial books I’ve read in the past year. It’s an eclectic mix as most of the reading has been online. I think that only Quit Like a Millionaire changed my perception on finance:

  • The Bogleheads’ Guide to the Three Fund Portfolio by Taylor Larimore
  • Think, Act and Invest Like Warren Buffet by Larry Swedroe.
  • What I Learned Losing a Million Dollars by Jim Paul and Brendan Moynihan
  • Quit Like a Millionaire by Kristy Shen and Bryce Leung

Quit Like a Millionaire is a little fluffy and I wouldn’t FIRE on just $1M because most folks (especially me) aren’t frugal enough to live on $40K a year but the whole idea that FI Equals Freedom to pursue your passions and how really useful it is to achieve financial independence early in life and why I want to help my kids and their kids and the kids after that achieve that…preferably without affluenza…

FIEF not FIRE

In my first post I said that I didn’t believe in FIRE (Financial Independence/Retire Early). Folks that really retire early (in the classic sense of not working anymore) probably don’t have the drive to get the FI part done.

What you find in the FIRE world is a lot of “retired” folks diligently working on their side hustles, managing property, writing books and building their FIRE site. Which is great but it ain’t retired.

So FI doesn’t equal Retire Early, instead FI Equals Freedom (FIEF) to do what you want…which is even better! This isn’t some new concept even within the FIRE community. The Retire Early is what folks focus on but it’s really the Financial Independence part that’s important. Even the term FIEF appeared in a list of alternative acronyms. I work for NASA so we do loooove acronyms. And I like FIEF because the way to FI is to build yourself a little financial fiefdom that generates the money that allows you to do what you want instead of what you need to do.

Feudal Fiefdom vs Modern FIEFdom

In a feudal system you were granted land to support your lifestyle, either as a reward or in exchange for service (as say a Knight). Serfs would work the land so you could pursue other endeavors, whether that was art or politics or the ability to ride a horse and swing a sword. The land was often hereditary and passed from generation to generation (more on this in another post).

In a modern FIEFdom we replace serfs with money…and using the adage of using money to make more money. That’s the whole passive income gig and the path to financial independence. You don’t necessarily stop “working” but you do get to do whatever you might want to do instead of grinding a 9 to 5 career…including spending your time learning how to ride a horse, swing a sword and working at Renaissance Festivals as a career.

So not only do we have a four letter acronym that spells a real word but we have a corny slogan to use (“building your financial FIEFdom!”).

Win.

Author’s Note: It’s probably very obvious at this point that the site is rather unpolished. I prefer to say that it’s a “soft launch” since there is no SEO, graphics, logos and any attempt to drive any traffic here. I’m creating content for the real launch and the content that’s here is subject to editing, rearranging and even deletion. If by some miracle you found this site, well, welcome and pardon the dust…

A New Journey…

I created this site (on New Year’s day!) to begin to document for my kids the journey to (hopefully) multi-generational financial freedom. To tell them the story of their grandparents, parents and the hopefully a foretelling of their own kids and grandkids.

I looked for existing sites to help guide our journey and there’s not a lot out there that talks about trying to creating wealth that lasts…probably because very few folks that aren’t Ultra High Net Worth ($30MM+) can do so (we aren’t in case you’re wondering). Folks in that UHNW category probably have better things to do with their time than start blogs and have the resources to establish a Family Office that will help preserve their large wealth for future generations.

So what can “merely” HNW ($1-$5MM) families do? Should they do anything beyond the normal estate planning? Is it harmful to even try?

I think it’s worth doing…many may disagree but as I read all the different FIRE (Financial Independence/Retire Early) sites it strikes me that I’m not sure I’d consider very many FIRE bloggers to be actually “retired”. So I don’t buy into the “Retire Early” idea even when financially secure and neither did my parents who very early on hit their 25x spending threshold by being very very frugal but kept working anyway. They weren’t “rich” but they were financially independent.

So what does FI buy you? Freedom. And what parent wouldn’t want to help their kids achieve freedom? So FI doesn’t equal Retire Early. FI Equals Freedom…FIEF. And the structure to get them FI is a financial FIEFdom…