Why you need to build your personal wealth bubble - Elaine Froese | Canada’s Farm Whisperer | Your go-to expert for farm families who want better communication and conflict resolution to secure a successful farm transition

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Why you need to build your personal wealth bubble

by | Mar 16, 2023 | Uncategorized

“Why is it important to have personal investment?

Why investing matters. Investing is an effective way to put your money to work and potentially build wealth. Smart investing may allow your money to outpace inflation and increase in value. The greater growth potential of investing is primarily due to the power of compounding and the risk-return tradeoff.”

The above quote comes straight from the internet. I use the term “personal wealth bubble” which does not google well. I am talking about the need to have some flexibility in your wealth creation beyond the wealth you are creating in farm assets.

This is important to me as a farm coach for 3 reasons.

  1. Income streams for you as founders can come from your personal investments to give you a decent living income for the next 3 decades, and at the same time do not draw a lot of income from your farm business.  If you have set up a farm transition structure that allows you to draw income from preferred shares and other farm sources, good for you! Your homework is to discover what is your current family’s living expense for you in the next 5 years. We spend $75K on family living which does not include charity or investments. What do you need to live well? This personal money conversation is key to creating clarity of expectations with all generations in building your transition plan.
    I once had a farm couple ask their sons for $120K annually from the farm, and the actual draw was $38,500. Your numbers need to be reasonable and workable for the farm’s cash flow. If you don’t need to draw much from the farm, you as founders are really helping the next generation get a good start.
  2. The bulk of your land is not likely to be sold to the next generation as they cannot afford to buy it. If you are thinking your “retirement plan” is to sell off farm assets, you may be surprised to be caught holding them. The next generation may be able to buy some of your assets, but not $15M worth! Having personal wealth spreads your wealth across the farm assets and the personal side. Have you started talking to the successors about what they are willing to buy? Don’t put this conversation off. Many young farmers can get special loan rates under age 40, and they are eager to take on “good debt” so they can cash flow. Time is on their side, not yours.
  3. Fairness to non-farm heirs.  Fairness in my books is “helping everyone in the family be successful.” This will mean different gifts or transfers or bequests to different folks. Someone wrote “fairness is not a mathematical equation. The view of the fair is unique. What we think is fair is irrelevant, it is not a concept to build a plan on!” When you have the personal wealth to transfer to non-farm heirs, you can keep the farm assets intact for your farm successors and you to draw income from. Having the ability to use your personal wealth bubble to give gifts with a warm hand, such as house mortgage down payments, college tuition, vehicles, etc. gives you flexibility from the personal side without adding a financial strain to the farm business.

“Elaine, I don’t have much on the personal side of my wealth equation, what can I do?”

You cannot change the past, you can act now and create more wealth for yourself personally.

I encourage you to hire a fee-for service financial planner to help you simplify your investment goals, find out what you need for the lifestyle you want to finance over the next 3 decades and build contingency plans, eg, needing to be in assisted living when you are over 80. My financial planners have used my data to help see what I will have when I am 102.

Who do I recommend? Ray Riel is based in Regina click here to know more, Wendall Kerr is based in Medicine Hat click here to know more, Erik Forbes click here to know more, Sara McCullough based in Kitchener click here to know more. Colin Sabourin is based in Winnipeg click here to know more.

You can also search the directory of the Canadian Association of Farm Advisors here. Use Certified Financial Planner in your search.

Some of the aging population is holding a lot of personal wealth in farmland which they hang on tight to as it gives them a great sense of security. The flip side of this is the younger farmers need equity to leverage debt, and they cannot convince grandma or grandpa to share the title to the land. This also doesn’t help the parents of the grandchildren who are also waiting for farm assets in their names!  If the older generation has a scarcity mindset, it will take a great financial planner to show them how to move assets around to satisfy the need for security and the flexibility of cash flow for the next generation(s).

Many farm folks have reinvested in their farms because they know to farm and don’t like investments they don’t understand. If you were to take a 4% return on $2M dollars you would have $80K for family living. Young farmers have many demands on their cash flow, so how can they build up their personal wealth? It takes time and discipline. Some folks call it “Paying yourself first”. You might also want to invest in TFSAs, tax-free savings accounts, where the 2023 contribution is $6500 per person.

I am not a financial planner, and this column is not to be taken as financial advice. It is a statement of the concept of building wealth beyond the farm assets to give you flexibility for living expenses and transfer of wealth to non-farm heirs.

Talking about money will not kill you. Having a healthy attitude to challenge the money scripts of your family will help everyone find a way to get certainty and security for their financial futures. 

Read Bruce Sellery’s great book “ Moolala…why smart people do dumb things with their money.” And then ask “What does money mean to you ?” Enjoy his podcast at Moolala: money made simple with Bruce Sellery.

***

Elaine Froese, CSP, CAFA, CHICoach, graduated in 1978 with a degree in Home Economics. She has tracked family living expenses for over 40 years, thankfully now via Quickbooks. Good money management gives great freedom. Visit here and hire her to speak.

**Note – In this weeks video, I mention 33Seven. The correct link to their website is https://33seven.ca/

Did you enjoy Why you need to build your personal wealth bubble? You might want to check these articles out too:

Help! My parents have loads of debt we don’t want!
How to make tracking your family living spending a top-drawer event
Really love the next-gen with decent compensation…sweat equity 11 years later

Follow Elaine on Social for More Helpful Farm Family Advice!

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