There will be times wherein your wealth will become more of a burden than an asset to you. It is normally a result of poor or lack of knowledge or financial planning and strategy. Below are some situations wherein your wealth becomes a burden on your part.
1.) The greater your wealth is, the greater your tax will be. Tax is something that you see and hate in your pay slip. For example, if the tax you pay in your country is 10 percent of your income, then if you’re earning $2,000 a month, you’re required to give $200 to the government. Harsh isn’t it? Imagine if you earn $10,000 in a month, then you’re required to pay $1,000. Now imagine if you’re earning around $1,000,000 in a month. That means you’d be paying $100,000 worth of taxes. You feel bad because you know you can buy a lot more with $100,000. Now, taxes aren’t only slapped on income. Almost anything you own is subjected to tax. For example, your house, your assets and your vehicle. Assuming property tax is around 10 percent and your house is worth $5,000,000, then you’re required to pay $500,000 in taxes. On your part, taxes are an additional expense and is basically an expense for nothing since nothing comes back on your part. Hence, as your wealth is increasing, expect your tax to increase as well.
2.) If you haven’t prepared for the unfortunate, your wealth can become a huge burden. Estate planning is essential especially if your assets are increasing or if it is huge enough. A lot of people take estate planning for granted and end up regretting. Estate planning is very important because the estate tax that has to be paid in transferring your assets to your heirs is very expensive. For example, if your total assets is worth $20,000,000 and you either got disabled or worse, died. Since your assets are all under your name, your heirs (children, relatives, other family members) are required to pay an estate tax in order to claim your assets. Normally, estate tax will be around 15 to 20 percent of your net asset value hence for a $20,000,000 asset base, your heirs might be required to pay up to $4,000,000. If they aren’t as affluent as you, where can they find $4,000,000?
3.) A huge wealth base can go out of hand if you won’t manage and keep track of it well. There will be times wherein you can trace the trail of your money and assets, the result of which reveals you have lost a lot. Sometimes, especially during bad economic times, your portfolio may do more harm than good as it will easily and quickly lose its value. If you have lots of wealth, you may require somebody competent enough to either help you or manage it for you.