Yahoo Finance 8 Upper Class Money Traps That Ruin Your Wealth
Having a higher income doesn’t make you immune to making poor financial decisions. Those in the upper class might have access to more resources, but they can also easily fall for money traps that may jeopardize their wealth.
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“One bad money habit that I have noticed among wealthy individuals is overspending,” said Paige Robinson, real estate investor and owner of House Buyers. “With their high income, some people tend to develop a habit of living beyond their means and indulging in expensive purchases or lifestyle choices.”
She added that this can lead to mounting debt and a false sense of financial security, as these people may believe that their high income will always cover their expenses. Below are eight more financial missteps the wealthy should be wary of making.
Believing You Have Unlimited Funds
“The most common money mistake I see wealthy people make is the false sense of security they have in their current bank balance,” said Martin Gasparian, attorney and owner of the law firm Maison Law. “They seem to think the money will always be there, without real awareness that zero is indeed a number, and at some point without proper planning, it may just come up.”
He continued, “So perhaps more of an attitude than behavior, I advise my financial clients to keep a keen eye on their current financial condition, as well as how they intend to stay there.”
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Impulsive Spending
Even if someone has a lot of money, it doesn’t give them a free pass to spend recklessly, warned Sherman Standberry, licensed CPA and managing partner at My CPA Coach.
“Some wealthy people can get so used to having plenty of disposable income, that they develop a habit of buying things they don’t or will ever need,” he explained. “If they’re not careful enough, this habit can lead to some financial trouble in the long run.”
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Not Vetting Who You Give Money
Another bad money habit that the wealthy succumb to, according to Gasparian, is the habit of handing out money to people who — while may seem in need – -really have no intention of paying them back.
“This includes investments that are not properly vetted or any large-scale financial purchases that lack forethought and true investment purpose.”
Neglecting To Pay Bills on Time
“I have also seen many well-to-do clients with dismal credit scores and a ledger full of late notices,” said Gasparian. “Those with capital may know how much money they have, but if their bills are delinquent or unattended to, this type of behavior leads to an unfavorable financial impression, and if one’s credit history is ever called into question, such debt may come back to haunt someone in a poor way.”
Failing To Plan for Emergencies
Sometimes even rich folks forget to plan for surprises like getting sick, money troubles, or big life changes, said Karina Newman, real estate investor and owner of iBuyers.
“Not thinking ahead can really mess up their money situation, even if they have plenty of it,” she noted. “It’s like forgetting to bring an umbrella on a rainy day — you might end up soaked and wishing you had planned better.”
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Overspending on Eating Out
Tim Connon, founder and CEO of ParamountQuote Life Insurance Advisors, said one common bad money habit wealthy people fall into is eating out on a regular basis.
“The reason this is such a bad habit is because wealthy people fail to realize how much money they are spending when dining out,” he noted. “They could order extra drinks or dessert which results in them spending an additional $30 or more depending on the tip. This means even though someone is having a good time eating out they are over paying for food, drinks and desserts.”
Additionally, he said peer pressure often plays a role. “Like if they are trying to impress someone on a date and do not want to look cheap in front of them–this contributes to spending extra money unnecessarily.”
Investing Blindly
“Many people tend to follow the herd mentality and invest in popular or trending things without doing thorough research,” said Standberry. “In social media alone, you can find so many people pretending to be finance or investing experts, tricking people into putting their hard-earned money into certain investments that won’t necessarily bring any good returns.”
He said this is a common trap that many people fall into — including rich people — which can lead to major financial losses.
Forgetting To Diversify Investments and Optimize Taxes
According to Alyssa Huff, owner of SellHouse AsIs, wealthy individuals can sometimes get a bit too confident in their investment skills and end up overlooking the importance of diversification.
“They might pour all their money into one type of asset or investment, which can be risky and could lead to big losses if things don’t go as planned,” Huff said.
She added that they sometimes forget about the impact of taxes on their finances.
“Not paying enough attention to tax efficiency could mean they end up with hefty tax bills, eating into their overall wealth.”
To avoid this, she said it’s crucial to consider strategies like spreading investments across different areas and taking advantage of tax-saving opportunities such as retirement accounts and charitable giving.
“These steps can help safeguard wealth and maximize growth in the long run.”
Other experts agree that failing to diversify is a major area of concern for those in the upper class.
“Wealthy people may have a lot of money, but they should still work on protecting their wealth for the future,” said Standberry. “Putting all their eggs in one basket is never a good idea, even if that basket seems very secure and profitable at the moment.”
He said diversifying investments can help minimize risk and protect their wealth, just in case one of their investments fails or maybe underperforms.
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This article originally appeared on GOBankingRates.com: 8 Upper Class Money Traps That Ruin Your Wealth
