WPA Pool / Pool / Getting Images
Sometimes rich people lose their wealth. Things can go wrong.
Sometimes those things that go wrong are outside the control of the wealthy (i.e. random bad luck) but more often than not they are things that are completely within their control.
As a CPA, I’ve been advising wealthy individuals in money matters for more than 30 years. Plus, I spent five years studying the money habits of the rich and the poor in my Rich Habits Study. In my CPA business and from my research, I’ve documented a few all-too-common blunders wealthy individuals make that cause their wealth to evaporate.
You would think they’d know better, but they don’t. The wealthy who make these mistakes all seem to be reading from the same script.
So, I thought I’d share a few of the most common blunders of the rich that steal their wealth like a thief in the night:
Carlos Alvarez / Stringer / Getty Imges
They watch their pennies, but blow their dollars
Many millionaires are frugal. By frugal, I mean they penny pinch dry cleaner costs, bank fees, credit card fees, landscaper costs, grooming expenses such as haircuts and manicures, professional service fees such as CPAs, attorneys, and doctor and dentist charges. They will fight like a Tasmanian devil if they think they were overcharged for a grocery item or a restaurant charge.
And then these same penny pinchers will go out and buy a boat, Tesla, a diamond ring, or take an absurdly expensive vacation.
I have seen far too many wealthy business owners fight to keep wages down at their business only to spend those hard-fought savings on yachts, big homes, or expensive cars. It’s as if they have Jekyll and Hyde battling it out inside their very own body.
While it’s a Rich Habit to watch your pennies, it is a Poor Habit when you take those hard earned pennies and make an expensive emotional purchase.
They get too emotional about their investments
The vast majority of the rich in my study and in my CPA practice are long-term investors. They buy, hold and never panic. In fact, when the economy turns south they might even double down on their investments, buying more at a discounted price.
But I’ve seen some wealthy individuals who invest aggressively and continue to do so until the economy turns south. Then they panic and begin unloading their investments. These so-called “aggressive investors” are actually conservative investors in disguise. They are sheep in wolf’s clothing. And their wolf disguise comes flying off the moment they start losing money.
Miles Willis / Stringer / Getty Images
They fail to realize the devil is in the details
Most wealthy individuals become wealthy in one of four ways:
• They live below their means (save more than they spend)
• They expand their means (grow their income)
• They do both (save and grow income)
• They inherit their money
Some of the individuals who fall into the expand-their-means or inherit-their-money categories have something in common: They often do not pay attention to the devil in the details.
What I mean is that they don’t review their monthly bank transactions, monthly bills, or monthly credit card statements in order to make sure there are no unauthorized transactions or fees. They also don’t review transactions such as hotel bills, retail purchases, or restaurant tabs to make sure they were not overcharged and paid the correct amount. They also don’t review their expenses at least once a year to see if they can reduce those expenses for the following year.
For example, cable and cell phone costs keep going down due to increased competition. If you don’t spend any time trying to find the lowest price, it could result in you to paying more than you should.