The importance of wealth management

I wish to preface my comments by saying that I wish Ed McMahon the best of luck in dealing with his health and financial predicaments. When I was kid, my family used to watch Star Search and I remember watching the show even before I understood what it was about. I certainly do not want to see this 85 year old beloved icon of American entertainment lose his home to foreclosure.

 

But the story that surfaced today about his financial dilemma illustrates just how little even affluent Americans know about prudent wealth management. According to Wikipedia, McMahon had a net worth of more than $200 million in the 1990s. Over the next decade, divorce settlements, declining real estate value, and a career-stalling neck injury put him in a situation where he currently owes $644,000 in mortgage payments.

 

Everywhere around us is evidence that the wealthiest nation in the world has somehow produced a population which is incapable of wealth management. I think this is partly due to a culture where we push everything to the extreme. When I was in business school we had a class visit from two alums who started a successful email marketing company in Durham. The duo explained that company cash flow was so tight in the beginning that the two did not get paid for the first year. When a student asked how they survived an entire year without a salary, one explained that it was the result of having purposely made financial decisions to live below his means. He said we could graduate from business school and choose to either use our MBA salaries to live a lavish lifestyle or be frugal and create further lifestyle and business opportunities along the way.

 

With the recent economic problems in the country, one of the most important thing Americans can do during this time is the virtue of saving for a rainy day.