Mistakes the rich just don’t make

07 Jun, 2024 - 00:06 0 Views
Mistakes the rich just don’t make The rich and famous

eBusiness Weekly

Why are the rich, rich? What do they do differently? Creating and sustaining wealth might seem impossible, but it’s not. If you are a dedicated and consistent investor, wealth will come. Holding on to it, however, requires a level of self-discipline and a long-term outlook.

As a rule, successful people avoid these 10 common financial mistakes.

1. They do not spend more than they earn

The wealthy never spend more than they earn and are not interested in keeping up with the Joneses.

Warren Buffett eats lunch at McDonald’s three times a week (maybe not the best advice from a health perspective), and Bill Gates wears a modest watch. Mark Zuckerberg, with all his billions, drives a Volkswagen Golf.

2. They do not try to “time” the market

The wealthy are not speculators. They accept that it’s becoming increasingly difficult for financial analysts to forecast market trends since no two business cycles are the same, and more people than ever have access to investment knowledge.

3. They do not avoid risk, but they do not gamble with their life savings

Wealthy people know that risk is inextricable and is linked to high returns in the long run. They always have appropriate exposure to growth assets in their portfolios to ensure their investments grow well beyond inflation. Importantly, they take calculated risks and invest in assets they understand. They do not gamble with speculative investments.

4. They do not make emotional decisions

Wealthy people are conscious of their particular emotional biases. They do not struggle with the so-called “familiarity bias” (only investing in assets you have experience with), and they are aware of “recency bias” (knowing that events from the past will recur). They do not follow the masses by placing excessive value on lifestyle assets like homes and holiday homes.

5. They do not live on credit

The wealthy do not use credit for depreciating assets (like cars) or risky investments and do not go into overdraft when paying for holidays or household goods. However, they use a credit card (paid up every month) for safety, convenience, and benefits like loyalty points and complimentary travel insurance.

They also borrow funds, with calculated risk, for business ventures that will generate income and be appreciated over time.

6. They do not put all their eggs in one basket

Wealthy people adhere to the age-old investment policy of diversification. They invest in different asset classes, industries, and geographic locations to minimise risk. Wealthy entrepreneurs don’t invest in their business/es alone; they also invest in unrelated or external investments, like a retirement fund, which will ensure that their business profits are locked in.

7. They do not procrastinate

The wealthy do not leave things until the last minute. They start investing early in their careers because they understand the value of time in the market, the benefit of being invested during the best days of the market, and the magic of compound growth.

8. They do not sell when the market dips

The wealthy know markets are cyclical. They don’t sell when the bear growls because they understand that any losses incurred during a dip are essentially “paper losses”, and the bull will start to run again. They know you cannot afford to be in cash during the best-performing days.

9. They do not undervalue themselves

Wealthy people do not doubt that they are their greatest asset. They invest in themselves by learning more, staying healthy, and keeping abreast of technology. But the wealthy do not overvalue themselves either. They delegate tasks and responsibilities and consult various professionals in different disciplines.

They almost always have a strong relationship with a trusted independent advisor and a team of professionals who stand in their corner.

10. They do not live with closed hands

The truly wealthy, and this includes not only those with significant material riches but also those who understand real wealth is about more than just money, respect the concept of reciprocity.

They give back to the communities in which they live. In South Africa, this means employing people and creating opportunities. If we all embraced this mindset, we could make a real difference to our economy and thereby grow our shared wealth. — Moneyweb

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