4 forces that erode wealth and how to stop them

Most financial plans focus on money coming in (income), money going out (expenses), and what you do with the rest after the bills get paid. What they don’t always address is the financial erosion that threatens your ability to save more and build wealth.

What is wealth erosion?

You’re doing a good job of building wealth, but four forces are at work every day chipping away at your success. This is called wealth erosion, and it wears away at your future wealth the same way waves erode the shoreline or wind rounds a hilltop. These forces happen slowly; you don’t always notice them. Over time, they have an impact on your wealth.

We have demonstrated to many households how the lifetime cost of wealth erosion can be in the hundreds of thousands or even millions of dollars in lost family wealth. Our job is to spot these wealth-eroding forces and either stop, reduce, or recapture their financial damage.

The 4 forces of wealth erosion

Taxes

Taxes aren't inherently bad—they fund roads, schools, fire departments, and health care. But paying more than you need to allows money to leak out of your financial plan and leads to long-term wealth erosion. This is one of the first places where we hunt for opportunities to make your finances more resilient.

Tax-efficient investing, income splitting, utilizing registered accounts properly, and timing your income strategically are all ways to keep more money in your pocket. We’ll work with you to identify those strategies throughout the year to avoid any financial landmines at tax time.

Over the long term, tax planning is one of the best ways you can ensure that your family keeps more of the money you leave behind. This process begins decades in advance so that you pass down wealth that is protected and preserved.

Inflation

The kind of month-to-month inflation reported in the news makes most things more expensive in the short run. Because this happens in real time and in plain sight, it’s easy to make adjustments to your household budget.

The kind of inflation we worry about for our clients is the long-term variety. We don’t try to guess what the rate of inflation will be in 20 or 30 years, or how much everyday items might cost. Instead, we look for investments and insurance solutions that are pre-wired to withstand any kind of inflation.

For example, a generation ago, car ownership meant buying what you could afford and keeping it until it ‘died’. Fast forward: you have little choice but to lease a new vehicle every four years, with little understanding of the true financing costs, plus warranties, subscriptions, and expensive replacement parts.  So not only has the cost of owning a car increased, but the way we purchase vehicles makes them inherently more expensive. Your financial strategy needs to reflect these kinds of increasing costs over your lifetime. Our clients don’t worry about the future, because we plan for it.

Spending

How you pay for things matters because there is always a trade-off between what you get and how much you give up. For example:  

• Financing can be cheaper in the long run because your investments continue to benefit from compound interest.

• Borrowing money to invest may create tax advantages.

• Liquidating cash may be the best option for smaller purchases.

Choices like these help you keep more of your money by balancing the cost of borrowing with opportunity cost. The goal isn’t to stop spending money. It’s to enjoy the fruits of your labour. Our job is to help you evaluate those trade-offs before you make them so your financial plan is optimized for growth.

Technology

If you have a financial plan, it’s likely not capturing and assessing the cost of home technology spending. Consider all of the technology unheard of 20 years ago that we now pay a monthly fee to own and replace. It’s reasonable to expect we will have no choice but to own more technology in the future and pay for it. We uncover the financial impact of buying and replacing technology and adjusting your plan to help you manage the cost. On the flipside, technology may offer opportunities to save money or even profit. Buying things like electric cars and heat pumps, or selling electricity back to the grid with a state-of-the-art solar-panelled roof, all have a financial impact on your wealth.  

We work with you to plan and prioritize the purchasing of new technologies that are going to make your life better, and which ones are going to lead to unnecessary erosion. Then, we help you budget and pay for your tech upgrades cost-effectively. 

Building the defence system

Plugging those short and long-term money leaks in a financial plan is the smartest and fastest way to eliminate wealth erosion and build long-term, resilient wealth.

Are you curious about the threats to your wealth? Let’s connect and discuss how we can find them, reduce or eliminate them, and uncover opportunities to protect your wealth from threats that can erode it.