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Top 6 reasons rich people go broke

Discussion in 'General Property Chat' started by Skilled_Migrant, 21st Jun, 2016.

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  1. Skilled_Migrant

    Skilled_Migrant Well-Known Member

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    Interesting article in AFR by a CPA:
    The top 6 reasons rich people lose their money, as told by a veteran accountant

    Some edited (by me) sections of the article
    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.

    They get too emotional about their investments
    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.

    They fail to realise the devil is in the details
    Most wealthy individuals become wealthy in one of four ways:
    1. They live below their means (save more than they spend)
    2. They expand their means (grow their income)
    3. They do both (save and grow income)
    4. 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 unauthorised 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.

    They keep all of their eggs in one basket
    But some rich people make the mistake of tying the bulk of their assets up in one place, such as their own business or in real estate — two very illiquid investments. For these wealthy individuals, when something goes wrong, they are forced to sell some of their investments at a discount or increase their debt by securing a loan or tapping their credit line.

    They don't plan for the future in a realistic way
    Another common money misstep is lack of proper planning. The three big missteps in this category include:
    1. Lack of adequate retirement planning
    2. Lack of adequate estate planning
    3. Not having an updated will
    They're generous to a fault
    When you don't have to work very hard for your wealth, you simply do not value that money as much as you otherwise would, and there is a tendency to give too much of it away to family, friends, or charities. Once people find out you're rich, they hit you up for money. It can come from every direction and overwhelm you.
     
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  2. willair

    willair Well-Known Member Premium Member

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  3. Mick Butterfield

    Mick Butterfield Well-Known Member

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    Surprised greed didn't get a mention.
     
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  4. Plutus

    Plutus Well-Known Member

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    Doesn't it all really come down to 2 reasons, spending and risk?
     
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  5. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    And common sense/restraint.
     
  6. hash_investor

    hash_investor Well-Known Member

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    will hopefully qualify to read this article in a few years time
     
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  7. Biz

    Biz Well-Known Member

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    This article should be re titled "Top 6 reasons poor people think rich people go broke"
     
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  8. MTR

    MTR Well-Known Member Premium Member

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    I like this, in particular number 2.

    Most wealthy individuals become wealthy in one of four ways:
    1. They live below their means (save more than they spend)
    2. They expand their means (grow their income)
    3. They do both (save and grow income)
    4. They inherit their money
     
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  9. Bayview

    Bayview Well-Known Member

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    I want to be that bloke who does the humble brag where he says; "Had a bad year this year; lost $50 mill". ;)
     
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  10. mini2

    mini2 Well-Known Member

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    Yeah, better to have made it then blown it than never had it in the first place.
     
  11. DaveM

    DaveM Adelaide Buyers Agent & KFC Strategist Business Member

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    @datto said that recently. Minus the mill bit.
     
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  12. Bayview

    Bayview Well-Known Member

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    So true; hence the "I want to be" bit. :p
     
  13. Iamnumber5

    Iamnumber5 Well-Known Member

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    Or alternatively you can talk about your Rp. 1 billion development resort in Ubud.
     
  14. Bayview

    Bayview Well-Known Member

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    That wasn't humble; that was a carefully engineered way to get a free plug for the place....and thanks; you just gave me another one!!:p
     
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