The Financial Footprint Metaphor
A beautiful metaphor to illustrate financial legacy is the concept of the ‘financial footprint.’ This footprint embodies the decisions that exert impact or influence and what you pass on.
To me, the decisions that impact or influence you mainly concern how you affect those you love, the causes you care about, and your community.
On the other hand, what you pass on extends beyond material wealth – it includes relationships, wisdom and education, values and vision, and, of course, investments and money that you impart to the next generation.
The Three Outdated Legacy Models That Don’t Work
Having defined financial legacy and introduced the concept of a financial footprint, we can now evaluate the four models of financial legacy.
As stated, this perspective is developed from working closely with self-made individuals who don’t depend on substantial inheritances but carve out their financial journey. These individuals strive to build their wealth and make an impact.
To gain clarity about your financial legacy, it’s critical to understand the four most common legacy models.
Although presented with humour, these models reflect familiar scenarios that many investors encounter.
The Dead Duck Legacy
The first and most common model is what I refer to as the “Dead Duck Legacy”. This model begins with building wealth and investing in assets.
But, the issue arises when, after retirement, the cash flow from the investments isn’t enough to cover living expenses.
The gap between income and living costs forces individuals to sell their assets, often leading to resource depletion before the end of life.
The individual becomes dependent on others, such as the government or family, for financial support. In this model, the timing of death greatly affects the dependency duration.
The Skinny Cow Legacy
The second model, the “Skinny Cow Legacy”, also leads to the same scenario – retirement arrives, but the cash flow from the assets is insufficient.
But in this instance, resources are managed more carefully, trying to align the depletion of resources with the end of life. This model attempts to avoid the Dead Duck’s dependency by more thoughtfully spreading resources.
Still, the timing of death plays a crucial role – living longer than anticipated risks returning to a Dead Duck scenario.
The Lazy Panda Legacy
The third model is known as the “Lazy Panda Legacy”. In this model, you’ve accumulated a healthy nest egg through sound investment but again face a shortfall upon retirement.
The income from these assets isn’t enough to sustain your lifestyle, leading to the selling of assets.
The hope in this model is that, although you must sell some assets, a substantial amount remains at death.
But the leftover assets often aren’t income-generating, forcing recipients to sell these assets for sustenance.
The Revolutionary Legacy Model
While the three models above are widely accepted and often proposed by financial advisors, they share a painful commonality – they require you to ‘eat the cow’ or deplete your hard-earned assets.
Worse, you might fall short and lack the resources to sustain you through your life or leave behind assets that don’t benefit your recipients.
And this brings us to the fourth legacy model – one that I consider revolutionary and incredibly potent around financial legacy design.
The Free Bird Legacy
The “Free Bird Legacy” is a model I termed that addresses the critical shortcomings of the previous models.
In this model, you invest in assets that generate an income stream early on, not just at the cusp of retirement. This allows you to retire sooner and ensures that the income from your assets exceeds your living expenses.
In the Free Bird Legacy, when you die becomes irrelevant. You could live to be 200 years old because your asset base will support you regardless of how long you live.
The “Free Bird Legacy” model offers the freedom to choose when and if to retire from active work or business, and it provides an asset that will grow over time and support your lifestyle.
More importantly, the Free Bird Legacy model is where true legacy lives. It allows you to consider using your will to impact and influence – the essence of a potent financial legacy.
How to Go Beyond the Usual Models
While the Dead Duck, Skinny Cow, and Lazy Panda models are the most common, they are also flawed.
They rely heavily on traditional investing practices and do not incorporate significant strategic planning. They revolve around the cycle of earning, saving, investing, retiring, and then hoping for the best.
You might outlive your resources in these models, causing financial distress later in life and possibly leaving inadequate or even non-productive assets to your inheritors.
In stark contrast, the Free Bird Legacy model underscores the significance of establishing a resilient and robust asset base that yields a steady income stream.
It focuses on strategic investment in income-generating assets from an early stage, allowing for a comfortable and financially secure retirement, irrespective of your lifespan.
The Free Bird Legacy approach reduces dependency on uncertain factors such as market performance and economic stability.
Another profound advantage of this model is that it creates a solid foundation for your financial legacy.
If you leave behind an asset base that continues to generate income, you provide for the financial security of your heirs.
More so, you can designate some of these assets towards philanthropic causes, leaving a tangible impact on society.
The Free Bird Legacy model also fosters the concept of financial freedom. The early generation of steady income allows you to retire at will or not at all and pursue interests and passions you might not have had the time or resources to explore previously.
This choice is a valuable aspect of your financial legacy, demonstrating the power of strategic financial planning and wealth creation to your heirs.
Final Thoughts
In conclusion, while building wealth and ensuring a comfortable retirement are essential aspects of financial planning, it’s equally important to consider the kind of legacy you wish to leave behind.
While traditional models like the Dead Duck, Skinny Cow, and Lazy Panda have their place, exploring innovative strategies like the Free Bird Legacy model that allows for more financial security, freedom, and impactful legacy creation is beneficial.
After all, your financial footprint is not just about the wealth you’ve created but also the influence and impact you leave behind.
