Nearly $400,000 a year for a landscaper to maintain a home he didn’t live in. Unknowingly paying for 16 cars and 23 cellphones.
Those are just some of the frivolous expenses that actor Al Pacino details in his new memoir, Sonny Boy, expenditures that eventually whittled his fortune down from $50 million to nothing.
Thankfully, Pacino appears to have learned his lesson and is back on firm financial footing today. Unfortunately, there are far too many other successful individuals who have squandered their wealth because they didn’t have anyone to oversee and manage their cash flow.
For high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals, the task can seem overwhelming. With multiple homes, cars, boats and various employees and vendors to manage it all, the number and amount of expenses can spiral out of control. That’s why leaning on a multifamily office that is experienced in sorting, managing and synchronizing the cash flow of HNW and UHNW families can be so invaluable. Below are four steps to get started in taking control of your cash flow:
1. Carefully select your team of advisors.
As stated above, seeking out the services of a multifamily office that is experienced in managing the cash flow of successful individuals and families is essential. It’s simply too cumbersome and exhausting to try and do it all by yourself. The right multifamily office will also oversee your team of contractors, vendors, service providers, agents and advisors, which can include everyone from your CPA to your gardener, ensuring that all are working toward the same goals and objectives and that nothing falls through the cracks in terms of spending and your overall financial health.
2. Conduct an audit of your spending.
With the right multifamily office at the helm, the next step is to conduct a full audit of your cash flow. For many families, this can be a significant undertaking, which is why an experienced multifamily office is so critical. The goal is to establish a baseline by creating a comprehensive picture of your cash flow. Every expense. Every liability. Every source of income.
That initial audit can identify discrepancies and alert a family to an unsustainable trajectory of spending (or on the bright side, highlight the opportunity to spend more if desired). Based on that audit, a multifamily office can then develop various models that project how sustainable various levels of spending are, balanced against a family’s desired lifestyle going forward.
3. Create a detailed spending policy.
Particularly for those who have experienced a “liquidity event” or who come into wealth rather suddenly, it’s not unusual to be inundated with requests from friends and families, as well as mere acquaintances, seeking money or presenting “investment opportunities.”
While the initial instinct is often to be generous and share one’s good fortune, there is no shortage of cautionary tales of immensely successful people who essentially “gave away” all of their wealth. To avoid that fate, lean on your financial team to develop a very specific spending/investment policy and then vet every request to determine if they are in your financial best interests and something you can afford.
4. Identify potential risks.
Beyond unsolicited requests for cash and unrealistic lifestyle expectations, there is a multitude of other risks that could negatively impact the long-term sustainability of one’s wealth: accidents, health issues, cybersecurity threats, unforeseen economic downturns, etc. There is no shortage of external factors, many beyond our control, that can render even the most carefully constructed cash-flow models useless.
Working with your advisors, identify those potential risks and strategize on how you can mitigate any potential impact. That typically centers on ensuring you have appropriate risk management coverage, everything from insurance (personal liability, umbrella, cybersecurity, kidnap and ransom, financial crime, catastrophe and disability) to services (physical security, public relations and third-party management).
As Al Pacino learned the hard way, with wealth comes complexity. The right team of advisors can take the complexity of managing your wealth off your plate and ensure your spending aligns with your long-term financial goals, leaving you to pursue your passions in life with peace of mind that it all will last.