Five Mistakes Made by the Ultra-Wealthy to Avoid

Yes, even rich folks can be foolish about money sometimes.

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We generally assume that someone who has a lot of money must be really smart about money. Maybe. But according to “Rich Habits” author Tom Corley, who spent five years studying the habits of rich people, they don’t always know better.

Here are five of the mistakes he and other wealth managers found that rich people make. Some may sound familiar to you. Some may be surprising.1. They pinch pennies and then splurge.

Corley noted that many millionaires are quite frugal. They’ll argue and fight if they think they were overcharged at a restaurant or on a grocery item. Then, they’ll splurge on an emotional purchase, such as a boat, an expensive vacation or jewelry.

2. They don’t always know where their money is going.

While some are pinching pennies, other wealthy people are not paying attention to how they spend their money. According to Winnie Sun of Sun Group Wealth Partners in Irvine, California, a number of her clients admit to not knowing where their money goes. They don’t check their financial statements to see if they’re being charged fees and, if so, how much. They don’t track their spending and they don’t stick to a budget. The more they earn, the more they spend.

3. Their wants become needs.

When you can easily afford your wants, some of them tend to become needs. For example, a rich person suddenly needs a bigger boat, or a better vacation. Anyone can fall into the trap of mistaking wants for needs. For the wealthy, however, this misunderstanding can be very costly.

4. Their income and assets are not diversified enough.

For those with the greatest amount of wealth, it seems that they have three or more streams of income. Then if one stream dries up, the others are usually still available. However, some wealthy individuals make the mistake of tying up their assets in one place, such as their own businesses or in real estate. If something goes wrong, they can end up having to sell off assets at a discount or tap into their credit lines, thus ending up with high credit card debt.

5. They don’t have an estate plan.

The recent death of the musician Prince brought this issue to light quite dramatically. He didn’t have a Will and/or an estate plan. His heirs, whoever the court finally determines them to be (more than 30 people initially claimed a cut of his estate), will also have to pay higher estate and inheritance taxes. The federal and state governments will be richer by millions of dollars. And that’s just the dollars and cents. There are also personal property items and memorabilia that could end up being fought over and maybe needing a court to make those decisions as well.

You don’t have to be wealthy to make some of these mistakes. And thinking that you don’t need an estate plan because you aren’t wealthy could be the biggest one of all. An estate plan should really be a legacy plan. What do you want to leave to your heirs and beneficiaries? How do you want to be remembered? Sometimes the biggest hurts and arguments are not over money but over who should get Dad’s old fishing reel or Mom’s old and yellowed wedding dress.

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