Top 5 Mistakes of the Wealthy With Cole Pearson

This faith and finance podcast is underwritten in part by One Ascent.

God has created every single person and every square inch with immeasurable dignity. And every day, businesses impact these people and places in powerful ways, either causing them harm or helping them flourish. Our trusted sponsor, One Ascent, exists to help investors consider who a business impacts and how they're impacted. You can provide for your family, put your kids through college, or prepare for the next stage of life. One Ascent believes your values can also inspire how you invest by directing your investment capital into companies that positively impact the world. Whether you invest on your own or work with an advisor, One Ascent's comprehensive values-aligned solutions seek to help you do well by doing good. To explore a new way of investing that aligns with your values, visit OneAscent.com. Click on Analyze My Investments on the homepage to tailor your portfolio to what truly matters to you. We tend to think that wealthy individuals always make the right financial decisions, but is that always the case? Hi, I'm Rob West.

The truth is, folks with a high net worth can sometimes make financial mistakes just as easily as the rest of us, and perhaps with even worse consequences. Cole Pearson shares several of them today, and then it's on to your calls at 800-525-7000. That's 800-525-7000. This is Faith & Finance, biblical wisdom for your financial decisions. Well, Cole Pearson joins us again today. He's president of Investment Solutions at One Ascent, a family of companies seeking to help folks align their investments with their Christian values. We're also proud to say that One Ascent is an underwriter of this program. Cole, great to have you back. Thanks, Rob.

It's a pleasure to be back, and One Ascent's honored to support the program. Cole, as you know, in the past we've reported on some of the smart decisions the wealthy make that we can all learn from. I guess it's only fair to talk about some of the mistakes they make as well, huh? I'd definitely say so. I think it's also a lot easier to learn from the mistakes of others, right?

That's right. Even the wealthy, or high-net-worth individuals, they make the same common mistakes that most of us make that undermine our financial success, so for most people, wealthy or not, having a financial advisor can help you avoid some of these mistakes we'll talk about in just a moment. Well, let's dive into those right now.

What is the first one? The first one would be not updating estate plans regularly, and again, this applies not just to the wealthy. As people accumulate wealth, their estate planning needs change, and failing to update those plans can lead to unintended consequences. That could be probate, unforeseen taxes, legal challenges for heirs, among other problems.

The greater the estate, the greater the need to keep the estate planning up to date. No question about that one. Now, I know the next one relates to tax strategy.

Share that with us. The mistake that high-net-worth individuals make is not having one, not having a tax strategy. Everyone should be aware of the taxes that they'll have to pay and take advantage of tax-minimizing opportunities, but again, all the more so for wealthy individuals. They're subject to a variety of taxes, and proper tax planning can help minimize those liabilities, but also maximize after-tax income and the opportunity to be generous during their lifetime.

That's really helpful. Now, I know this next one, Cole, is something that a lot of folks might miss, and it's not diversifying their income. Explain that. That's true. People often tend to accumulate wealth through a single source of income.

Most of the time, that's their full-time job. And so, a lesson we can learn from wealthy individuals and mistakes, potentially, is thinking about the business or the investment portfolio. If we don't diversify our income streams, that can leave us vulnerable to market fluctuations or other economic risks. But anyone could benefit from thinking of ways to diversify income. Again, proper diversification is biblical.

We learned that from Ecclesiastes. Diversifying our income can help people weather economic storms and ensure financial stability. Yeah, that's a really important idea. Alright, the next mistake is one that, of course, anyone at any income level can make, but the wealthy are more prone to it. Wouldn't you agree, Cole?

I would. The wealthy are always in danger of lifestyle inflation, which is the tendency to increase spending as income increases. So, while the wealthy may have more disposable income, increasing spending at any income level can quickly erode wealth and jeopardize long-term financial goals. It's important to set a finish line out there for ourselves and control our spending. Yeah, your spending will always rise to your level of income unless you protest to the contrary.

Alright, we've got time for one more. Share it with us. Sure, the last common mistake that we see that undermines financial success is passing on not just the valuables, but the wealthy fail to pass on the values to the next generation. So, many times families, we pay close attention to all the things that we've just discussed, the planning for the estate, the taxes, the diversification, even our spending, but we completely neglect an intentional approach to the values, the legacy that we hope to pass on to our children, our grandchildren. And so, as Christians, we know that our financial decisions are stewardship decisions and that the resources God's entrusted to us, they can be used as a tool to make an eternal impact. So, one of the ways we can intentionally prepare to pass on values and not just the valuables is by incorporating them into our planning, into our investing, and our giving decisions and teaching our children and grandchildren to do so early. And when you think about it, our values, they inspire how we live, how we spend our time, who we spend our time with.

At One Ascent, we think that you ought to allow your values to inspire how you steward your wealth as well, including the types of companies you invest in and own. I love that. So much great information there, Cole. We really appreciate you stopping by, my friend. Thanks, Rob.

Great to be here. Folks, if you want to explore a new way of investing that aligns your values with your faith, just go to OneAscent.com and click on Analyze My Investments. That's OneAscent.com. Back with your questions after this.

Stick around. FaithFi is grateful for support from One Ascent. One Ascent believes that your values inspire why you invest and how they can inspire how you invest. One Ascent's goal is to provide solutions designed for every need and invest in businesses that bless the people and places God has made. They want to help investors do well by doing good to explore a new way of investing that aligns with your values.

More information is available at OneAscent.com and by clicking Analyze My Investments. As a faithful listener of the Faith and Finance Program, you know that there is life-changing financial wisdom in God's Word to meet all your needs. More than anything, FaithFi is here to help you and millions of others see God as your ultimate treasure. As a nonprofit, we're grateful for our partners that help expand our outreach every month with their generosity. Has God provided financial answers for you through this ministry? Please consider becoming a monthly partner by visiting FaithFi.com and clicking Give. Great to have you with us today on Faith and Finance.

We're taking your calls and questions today, 800-525-7000. Our goal on this program, that God would be your ultimate treasure. What does that mean? Well, you know, if we see God as our ultimate treasure, that means nothing rivals that, certainly not anything in this world. Money becomes a tool to accomplish God's purposes. It's no longer an end, it's a means to an end. We realize God is our provider and our longing for abundance and fulfillment and purpose is found in God alone. Not the things of this world, the things that money can buy, those are fleeting. Now, it's to be enjoyed, it's to provide, it's to give, it's a good gift and creation from the Lord, but it's not something that's going to satisfy our longings for fulfillment and significance.

God alone should do that. And so when we pursue Him as our ultimate treasure, well, it puts everything in perspective, including our money management. Hey, what practical questions do you have in your financial life today? We'd love to tackle those with you. The number to call is 800-525-7000. We've got some lines open you can call right now. All right, let's go to Ohio. Matthew, thanks for your patience, sir.

Go ahead. Recently my father-in-law passed away and my wife and her brother is trying to get his house in their name. And there was no will, so I know he has to go to probate court and stuff. So we're just, I know we probably are going to have to get a lawyer from probate. We're just trying to figure out the next steps for that and how likely it is to get his house in their name or how unlikely it is since there was no will. He's only got around 45 grand left. And the house is fairly cheap, so we're just wanting her brother to be able to take it over.

Yeah, I certainly understand that. And it's going to take some time. It will happen.

You're just going to have to be patient. You know, since there is no will, the probate court will follow your state's, what are called, intestate laws to determine the beneficiaries and distribute the assets accordingly. Intestate succession varies by state, but generally the property will pass to the next of kin, so it would likely go there. And then what happens is, because the property cannot remain in the deceased's name, it will transfer through the state's succession law. And so to get the new deed for the property, you'd have to submit a death certificate and the probate court statement to the county recorder's office once that has worked itself through the probate court according to the intestate laws. So you're just going to need to get that process started as soon as you can. If you haven't already, let that work its way through just based on the laws of the state of Ohio, assuming that's where it was.

And then once it's complete, then that probate court statement would be provided to the county and they would give you a new deed. Okay. So it's fairly common then for that stuff to happen? Oh yeah.

It happens every day. Absolutely. Okay. That's what we were just worried about because we didn't know if the bank would just require a loan due immediately or if we would be able to actually transfer into their name because we didn't have a will.

Yeah. So normally what you do is from the assets, you would keep that current. I mean, you'd obviously want to let the bank know what's happened if you haven't already, the lender.

But normally out of the assets of the estate, the representative, which would normally be named in the will, in this case, it'll be assigned by the probate court, would continue to pay the mortgage until the probate court process is complete. And that can take months, unfortunately. Well, I appreciate the answers and stuff. That's basically all we was wondering.

We didn't want to end up doing all this and then they say, oh, no, we require the loan, get out of here type thing. So we were just wondering how that worked and we appreciate it. And I listen to your show a lot, so I always tell my wife the financial advice, so I appreciate everything. I'm delighted, Matthew. Well, thank you for calling today and being on the program. We appreciate it. May the Lord bless you and call any time. Eight hundred, five, two, five, seven thousand is the number to call if you have financial questions today. We've got some answers. At least we'll give you our best answer and we'll promise to do it in light of biblical wisdom and a biblical worldview.

Again, eight hundred, five, two, five, seven thousand. This email came to us recently at AskRob at FaithFi.com. Steve writes, I want to give a gift to my church for a building program and I've sold about twelve thousand six hundred dollars of stock to help with this. If I give all of the money from the sale of the stock to our church, will I owe any taxes on it?

It's a great question, Steve. Now, let me use this as a teaching opportunity not to in any way tell you you should have done something different. But, you know, in the future, if you want to do this and for the benefit of others, we want to give then sell, not sell then give.

And here's what I mean by that. If this is appreciated stock, and typically that's what you're giving away to your church or a ministry, at the sale are going to pay capital gains, either short term or long term capital gains on the gain that you have. A way to avoid that is you give the gift of the appreciated stock directly to your church in this case and they sell it.

Why would you do that? Well, you get the full amount of the market value of the appreciated securities as a charitable deduction and assuming you itemize and maybe this gift will help you get up above the standard deduction, then you get the full deduction of the market value. You don't pay any capital gains tax because you never sold it. The church gets to sell it and get the full benefit of the value of the shares of stock that you transferred to use for their purposes and no taxes paid and you get a bigger tax deduction. So it's just a great opportunity for you to make a gift but to do it prior to the sale, which just means more money into the kingdom, more tax deduction for you and certainly no capital gains tax paid.

Now, that's one way to do it. The second way to do it instead of sending directly to the church or ministry is to use a donor advised fund. Think of it as a charitable checking account. It's a way where you're able to make the gift of any asset, be it stocks, cash, property, even a business interest, piece of real estate, livestock, whatever you might be, you essentially make the gift of that to your donor advised fund. You get the immediate charitable deduction and then once it's sold inside the donor advised fund by the donor advised fund sponsor, then you recommend at the time into the ministry or charity of your choosing when it's granted out. And so that grant request originates with the donor and then the donor advised fund sponsor and I would recommend the National Christian Foundation ncfgiving.com would then carry out those wishes that recommendation or grant request and then issue the money. Why would you use a donor advised fund versus just giving the gift directly on the front end?

Only if you wanted to get the full deduction, let's say this year, but you didn't necessarily want to give the money away right away. Maybe you want to, you've got a big portfolio of stocks, you want to donate to your donor advised fund, but you want to distribute it over the next couple of years and you want to distribute it to multiple charities. Well, one of the benefits is you can take your time and grant it out over whatever time period you want and you're not getting charitable receipts from all of those ministries. You already got the deduction when you put the money in the donor advised fund and now you're just granting it out and you're not at tax time showing up with, you know, 15 charitable contribution receipts. You got one from the donor advised fund sponsor and then it makes its way to those ministries that you're choosing and it can be done similar to online banking where you log into your account, make a couple of clicks and that money shows up a few days later at the ministry.

You can do it anonymously or in your name. If you want to open a donor advised fund, it's called the Giving Fund at NCF. Just go to ncfgiving.com. That's the National Christian Foundation.

Several lines are open today, 800-525-7000. We still have half of our broadcast left, so plenty of time to perhaps tackle your question today. You know, folks, the big idea here is once we understand God owns it all, we want to live within our means, have some cushion or margin, set long term goals, but giving generously is key because that's going to loosen the grip of money over your life. Much more to come just around the corner here on Faith and Finance. I'm Rob West and we'll be right back.

Stick around. Nearly 60,000 people receive our free weekly wisdom email and you can too. Create your free Faith Buy account by going to faithbuy.com and click sign up to begin receiving weekly wisdom in your inbox. Do you feel like your hands are tied with debt, preventing you from serving God? If you have credit card debt, Christian credit counselors can help. Through our debt management program, we can get you out of credit card debt about 80% faster while honoring your debt in full. For more information on how Christian credit counselors can help, visit christiancreditcounselors.org.

That's christiancreditcounselors.org or call 800-557-1985, 800-557-1985. Thanks for joining us today on Faith and Finance. Hey, if you're looking for a financial professional who aligns with your Christian values, just head to our website, faithbuy.com right there at the top of the page.

You can click find a professional and find a certified kingdom advisor in your area. You'll get a complete listing of those right around the corner from you. We hope that that'll help you make professional investment and financial planning decisions aligned with your values as a believer. Again, faithbuy.com is the place to go.

All right, back to the phones we go. By the way, we've got some lines open today. If you have a financial question today, we'd love to tackle it with you or perhaps a testimony. I just heard a testimony today of a listener who was impacted by this ministry. What an encouragement when we hear you applying God's timeless wisdom in your financial life.

Be sure to share that with us as you see the fruit of that over time. You can call right now 800-525-7000. We've got lines open for you. Let's go to Michigan. Hi, Patty. Go right ahead. Well, hi. I'm so excited to be able to talk to you. Well, thank you.

I'm delighted to. I just received a new job. I'm 74, retired at 62.

We're both debt-free, my husband and I. This part-time job is just a greeter at the bank starting out at $11 an hour. I'll probably only work 12 hours a week, but they offer a 401K.

So they were like, I'm not making that much. I'm kind of old to be contributed any length of time. Is this something I should invest in or at my age, should I just take the income? Yes, it's a great question.

I love that you're thinking about this. I think it's always wise to invest. I think the starting place is to look at what are your ultimate goals and objectives.

And when you do that, I think you've got to prioritize based on what God has provided and as you prayerfully consider where you're headed, what opportunities you have ahead of you. So you all are debt-free. That's great. Do you have plenty of liquid savings, somewhere between six and 12 months worth of expenses in savings? Yes, we do.

We do own a manufactured home, so we do have lot rent and utilities, but we have two cars, no debt. So I guess it's just extra income if we live very long. And I think I'm 74. How long will I be able to do this? Two years?

Three years? Sure. Yeah, exactly. Well, the benefit, and you certainly can contribute to a 401k regardless of your age, so there's never a point where you can't. So long as you have earned income, and in this case, it's through salary deferral, which is how you fund a 401k.

You don't make direct contributions. You do it out of your paycheck and you'd let your employer know typically what percent, but it could be the dollar amount that you want them to put in out of each paycheck. And so what that would do is, especially now while you're continuing to work, to the extent you are paying taxes because you all have earned enough over and above Social Security to pay taxes, that contribution of that 401k would reduce that. Now, you are going to have required minimum distributions at some point. If they offered a Roth 401k, that may be another option to consider. Have they presented that option to you? Yes, the formula is 100% of the elective pre-tax and or Roth 401k contributions on the first 3% of your salary that you contribute to the plan and 50% of the elective pre-tax and or Roth 401k contribution on the next 2% that you contribute to the plan.

That makes no sense to me. Yeah, so what they're going to do is, they're going to give you free money here, which is always a good thing. So to the extent you put in up to 3% of your compensation in the 401k and they're giving you the option of a Roth 401k too, and I'll explain that in a moment, they're going to match it. So you put in $10, you put in the 10 from your salary, they're going to match it with $10 up to 3% of your salary and then the next 3%, they're going to give you 50 cents on every dollar that you put in.

So that's great. You're not going to get that in the stock market. So I would, if you have the ability, up to what you can, I'd go ahead and try to take full advantage of at least that 3%, if not the full 6%, because that would just ensure that you get that free money coming to you. And if you do it in a Roth 401k, then you don't have the required minimum distribution. And so you don't have a beyond a certain age where you have to start taking money out with the Roth, you could leave it in there, let it continue to grow. And that way, if you guys needed it down the road for, let's say, long term care, or you wanted to pass it on as an inheritance, it could continue to stay in there and grow forever until the Lord calls you home and then you could give it away or leave it to your heirs.

So I like that a lot, especially because of that matching portion, Patti. Okay, so if I can, if we can afford because we only have our social security, and a small retirement for the school district, I was a secretary, my husband was a custodian, so we weren't on the high end of the pay scale. But if I can afford to give 50% to 100% of my pay, would that be wise?

I would do it if you could, absolutely. Because, you know, keep in mind, the other thing here, if you use the traditional IRA, which gives you the tax break, you know, is, while you're working, you are, you know, not required to take that required minimum distribution from your employer. So it wouldn't be until you stop working there. So you could continue to sock away on a pre-tax basis in the traditional 401k. And then you could put in, you know, in the Roth IRA or 401k, you could put in after tax money.

But yeah, if you all could sock away the whole paycheck and just use that as kind of a savings account for yourself, I love that. I just, I wasn't sure because my, this was just presented to me yesterday. And I thought, oh, how am I going to figure this out?

And I thought, oh, I'm too old. Then I'm listening, of course, to your program. And I got right in. So we are going to do this. I'm so glad I got a hold of you because I was not going to. So thank you so much for your wisdom. You're welcome, Patty. I appreciate your call. Thanks for your kind remarks about the program as well. I appreciate that a lot. That's very meaningful.

Listen, all the best to you and your husband and call anytime. You know, folks, as we think about our role in managing God's money, it's a high calling. And there are principles we can pull out of scripture. Here's five basic principles when we think about managing God's money. And these are going to sound simple.

They're harder to do, but they're all rooted in scripture. Live within your means. That's a self-discipline issue. So often we live beyond our means. We've got to reign in spending to live within God's provision. Avoid the use of debt. It's not a sin.

But there are clear warnings in scripture. And let's only use it for appreciating assets and certainly where we have spousal unity. Third, have some margin or some liquidity, meaning you're living below your means.

You've got some surplus. That's how you fund those goals. More giving, paying down debt, saving for the future. By the way, cushion or margin is also key in the studies to overcoming conflict in marriage over money. Fourth, set long-term goals.

The longer turn your perspective, the better your decision today. And finally, give generously. Giving breaks the grip of money over your lives. Those are simple, hard to do.

They're biblical, though. That's going to do it for us today. I hope you found something encouraging and helpful today. A big thanks to my team. I certainly couldn't do it without them. Amy, Dan, Taylor and Jim. May the Lord bless you and I hope you'll come back and join us next time on Faith and Finance. We'll see you then. Faith and Finance is provided by Faith Buy and listeners like you.