You’d think they would know better, or at least hire people to know better for them. But the truth is, when it comes to handling their money, wealthy people often make boneheaded mistakes. That’s right. They’re just like the rest of us. The only difference is that their mistakes involve a lot more zero’s after the decimal point. Should you find yourself in the world of the wealthy, through inheritance, a smart stock tip, a lucky Lottery number or hard work and determination, here are 7 money mistakes and misconceptions to avoid at all costs.
1. Money won’t change me or the people around me:
The notion that wealth, especially sudden wealth, won’t have a behavioral effect on you or those around you may seem noble, but it is just plain foolish. It’s a fact of human nature that money changes people on both sides of the coin, so to speak. The trick is to be aware that certain changes are inevitable and prepare yourself to deal with them. A good example of this would be the sudden appearance of friends, people you didn’t really know or were mere acquaintances before your windfall. Although this may seem fun and flattering at first, it’s important to ask yourself these fundamental questions, Why me? and Why now? Not asking these questions can leave you vulnerable to the users, people who are only hanging out with you because they’re looking for a handout. The problem is made worse if you choose to flaunt your newfound fortune by making lavish purchases that attract attention to the fact that you have money. This doesn’t mean that you can’t enjoy being wealthy. It simply means that you need to exercise caution and resist the urge to adopt a whole new lifestyle. A common effect of the new friends syndrome is that the person with wealth withdraws from social interactions, no longer being sure who is a genuine friend or just an opportunist.
2. I don’t need to budget anymore:
In a song from the popular musical Evita, the character of Eva Peron sings some telling lines:
When the money keeps rolling out you don’t keep books
You can tell you’ve done well by the happy grateful looks
Accountants only slow things down, figures get in the way
Regardless of your income, unless you keep track of what is coming in and going out, there’s a very good chance that what is going out will be more than what is coming in. In other words, you have to keep a budget, or hire a professional you trust to keep the books for you. One of the characteristics of wealthy people who know how to handle money is that they are aware of how every dollar that comes in is either spent, invested, or saved. The rags to riches rock star mindset that the money will just keep rolling in more abundantly than it goes out and that there will always be enough to go around is a sure way to end up in bankruptcy court.
3. I can afford financial risks:
Another pitfall wealthy people can fall into is the notion that having more money allows them to take big financial risks. After all, it takes money to make money, is the reasoning here, along with the greed driven idea that you can never really have too much money. With an expanded circle of friends the wealthy are much more likely to be taken in by skillfully pitched get rich schemes that are always a sure thing
4. I don’t need a game plan:
Right up there with failing to keep a budget and taking unnecessary risks is the failure to have a financial game plan with goals and investments that can be tracked and evaluated in terms of meeting those goals. Buying too much stuff on credit can also be a major problem, as it can lead to runaway spending, whereas paying cash can often make even the very wealthy think twice about what they’re purchasing. Another critical mistake often made from not having a game plan is failing to update Wills and Trusts to keep up to date with current assets and the people they should be directed to.
5. I’m above being frugal:
Just because you no longer need to clip coupons to get by doesn’t mean you shouldn’t. You’d be surprised to know how many people who are considered very wealthy still live well within or below their means. Chances are, being frugal is how they acquired their money in the first place. They buy used cars and pay cash, they eat in, and they refrain from spending a lot of time and money at the casino or the track. Face it, if you could choose to be rich or smart, wouldn’t you rather be both? When it comes to handling wealth you can’t afford not to.