Building wealth is something many of us work towards for years.
We earn an income, buy a home, pay down the mortgage, build savings, contribute to KiwiSaver and invest when we can. Perhaps we start a business, which becomes another significant part of our financial position. Over time, all those decisions can add up to something significant.
But there's an important distinction that can sometimes get overlooked:
Building wealth and protecting the foundations behind it are two different things.
Wealth doesn't usually happen all at once
For most people, building wealth is a gradual process. You might start with your first job and your first pay cheque. Then perhaps comes a home loan, followed by years of mortgage repayments. You begin contributing to KiwiSaver, build some savings and make investments when circumstances allow. Your income grows as your career develops, and maybe you eventually start a business, which becomes another significant part of your financial position.
None of these things happens overnight. They're the result of years of decisions and effort.
And that's worth recognising.
Because when you look at your financial position today, you're not simply looking at a collection of assets.
You're looking at years of work.
But what is supporting your wealth?
Here's where the conversation changes.
Imagine you've spent 15 years building equity in your home. What makes it possible to continue paying the mortgage? Your income.
Imagine you've built a substantial investment portfolio. What allows you to continue contributing to it? Your income and your ability to keep working.
Imagine you've built a successful business. What is that business dependent on? Perhaps your knowledge, relationships, health, leadership and ability to work.
Imagine you've built financial security for your family. What supports that security? Potentially several things - your income, your health, your assets and the contributions of other family members.
In other words, many of the things we've built depend on foundations that can sometimes be overlooked.
Your income is part of the foundation
We've previously talked about income as one of your biggest assets. It's worth coming back to that idea here.
Your home might be worth hundreds of thousands of dollars. Your investments may have significant value. Your KiwiSaver balance may continue to grow over decades.
But none of those numbers necessarily tells you what happens if your ability to earn changes.
If illness or injury prevents you from working, your income may be affected. And when income changes, other parts of your financial plan can be affected too. Savings may be used instead of added to, investment contributions may be reduced, KiwiSaver contributions may change, mortgage repayments may become more difficult and long-term plans may need to be postponed.
You haven't necessarily lost the wealth you've already accumulated.
But the process of building it can be interrupted.
Your health is also part of the equation
Wealth accumulation often assumes something we don't consciously think about:
That we'll remain healthy enough to keep working and earning.
Most of the time, that's exactly what happens. But serious illness or injury can change the equation. There may be time away from work, additional expenses, changes to your lifestyle, reduced earning capacity, pressure on savings and potentially significant changes to the plans you had for the future.
This is where protection can sit alongside wealth creation. Trauma Cover, Income Protection and other forms of personal insurance can serve different purposes, depending on your circumstances and the policy arrangements.
They aren't designed to build wealth. They can instead form part of a broader strategy for protecting the financial foundations that allow you to keep building it.
Your home is an asset - but it's also a commitment
We often think about property as part of our wealth. And it can be. But a home can also come with a significant financial commitment.
A mortgage may take decades to repay. During that time, your ability to make those repayments is connected to your financial circumstances and income.
If something happens to you, the family may still have the home but face a very different financial position.
That's why the value of an asset shouldn't always be considered without looking at the commitments attached to it.
What you own and what you owe are both part of the picture.
Business owners have another layer
If you own a business, the relationship between wealth and protection can become even more complicated.
Your business may represent a significant part of your overall wealth, while also providing your personal income. Your ability to work may be critical to the business, which may depend on key people, shareholders and business borrowing. There may also be personal guarantees involved.
So protecting your wealth as a business owner may involve considering both personal and business risks.
Key Person Protection, Shareholder Protection and Debt Protection can each address different risks, depending on the business structure and circumstances. The important point is that the value of the business doesn't exist in isolation from the people and financial commitments surrounding it.
Protecting wealth isn't about expecting something to go wrong
It's easy for protection conversations to become focused on the worst-case scenario.
But that's not really the point.
The purpose isn't to assume something will happen. It's to recognise that the wealth you've built relies on certain foundations continuing to work — your income, your health, your ability to work, your family, your business and your financial commitments.
If one of those foundations changes, you want to understand what impact that could have on everything sitting above it.
Building and protecting are connected
Think about building a house. You can spend a great deal of time choosing the design, the materials and the finishes. But the house also needs solid foundations.
Financial wealth is similar.
You can spend years building your assets, but protecting the foundations that support those assets is a separate consideration. That doesn't necessarily mean protecting everything against every possible event. It means understanding where your financial vulnerabilities are and what resources you would have available if circumstances changed.
Take a look at the whole picture
Rather than looking at each part of your finances separately, consider how they connect.
Income helps fund your lifestyle, mortgage, savings and investments. Your home may be both an asset and a significant financial commitment. Savings can provide flexibility and a financial buffer. KiwiSaver and investments are often built with longer-term goals in mind. Your business may represent both your income and a significant part of your wealth. Your family may depend on the financial security you've created.
Then ask:
What are the foundations supporting all of this?
And:
What would happen if one of those foundations changed?
You've spent years building it
Building wealth is an achievement. It represents years of work, discipline, decisions and sometimes sacrifice.
Protecting it doesn't mean assuming that something will go wrong. It means recognising that wealth accumulation and financial protection have different roles.
One is about creating and growing what you have. The other is about considering what could help preserve your financial position if circumstances change.
You don't have to protect everything. You don't have to plan for every possible scenario. But understanding what you've built, what supports it and where the vulnerabilities might be can help you make more informed decisions about your financial future.
Because building wealth is one thing. Protecting the foundations that allowed you to build it is another.
And both deserve a place in the conversation.
If you've spent years building your income, home, savings, investments, KiwiSaver, business or family security, it may be worth reviewing how the different pieces of your financial plan fit together. At New Vision Financial Services, we can help you understand the role insurance can play alongside your wider financial plans and work with your other professional advisers where appropriate.
Glen Hatcher
Financial Adviser
New Vision Financial Services
Plan your future and let us help you have peace of mind along the way.