Rich people don’t make these 5 money mistakes
May 31st, 2017 by Jason B. Vanclef
Published: May 31, 2017 10:05 a.m. ET
Nancy Mann Jackson
Ever wondered how the uber-rich—the Warren Buffets and Mark Cubans of the world—live day to day? Sure, they may have some extravagant habits, but it’s highly likely they also follow the same key money rules that help them increase and protect their wealth. Even if you haven’t yet amassed a fortune of your own, you can benefit from doing the same. Here are five:
They don’t spend everything they earn.
“Most people make a living, spend what they feel they need to enjoy their lives and then dutifully save what is left. Unfortunately, that’s often little or nothing,” says Steve Martin, a Certified Financial Planner and senior managing director at BKD Wealth Advisors in Chicago. “Successful people, on the other hand, make a living and then first set aside the amount needed to reach their goals.”
By choosing to pay themselves first—which you can do, too, by diverting a portion of your paycheck into a savings account or scheduling auto-transfers from checking to savings—wealthy people reliably hit their targets, while also learning to delay gratification and avoiding wealth busters like credit card debt.
They don’t miss opportunities to grow their wealth.
Sustainably wealthy people don’t stop after securing a well-paying job; they’re constantly looking for ways to improve themselves and their financial pictures—whether it’s by working toward raises and promotions, finding passive income sources or starting a business. And as they increase their income, they make sure not to increase their lifestyle expenses at the same rate.
The same types of people who push for more than the status quo are also more likely to be invested in the financial markets. “They understand the chance for loss, but by investing regularly, over time, they recognize the opportunity for long-term growth,” Martin says.
They don’t make emotional financial decisions.
Rather than buying or selling investments based on gut feelings and emotions, financially successful people make deliberate decisions with their long-term goals and strategies in mind.
Understandably, it’s not always easy to put your emotions aside when it comes to money, which is why it’s important to create systems that prevent irrational decisions—adhering to a 24-hour cooling-off period before making any big money move, say. Or establish a set of rules for when it’s safe to purchase a new investment, such as a particular stock price-to-earnings threshold.
They don’t put all their eggs in one basket.
“High-net-worth clients understand the need for diversification and how [diverse income sources] work together,” Laboe says.
That means that rather than, say, hinging their retirement security on the success of their employer’s own stock, or spending all their savings on real-estate projects, successful people aim for several different sources of wealth—then look at them holistically as part of one, big portfolio.
“If designed appropriately, there will always be pieces performing better than others at various times,” Laboe says, which minimizes your exposure to risk. “Be realistic in overall returns, knowing that you are looking at the long term.”
They don’t go it alone.
Financially successful people don’t gamble with their livelihood on the line. In other words, if they’re not sure how to approach a big money decision, they get help. In some cases, Laboe says, that assistance should come from a trusted adviser, whose job it is to create financial plans that address complicated issues like taxes, estate planning and income distributions during retirement.
But getting help doesn’t always mean paying for financial advice. If you find yourself in uncharted financial territory, you can consult friends who’ve faced a similar situation with success, research expert analysis online or leverage technology.
From apps like Acorns and other robo advisers that help you start investing, to platforms like Mint and You Need a Budget, there are plenty of tools out there to help you make great financial choices and set you on the path to long-term financial success.