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I’m a Financial Planner: 9 Ways That Even Rich People Go Wrong With Their Money

By Nicole Spector

Imagine being rich. It could be the conduit to so many opportunities.

Maybe it means finally buying that house up on the hill or taking that vacation that has been dominating your bucket list. Maybe it means telling your parents you don’t need their help anymore. Maybe it means a nest egg for your retirement or an ambitious investment. Whatever it means, it probably feels great.

But bear in mind that it’s all too easy to lose wealth — even the sort that you’ve spent years meticulously accumulating. Rich people can and do go astray with their finances.

Here’s where they tend to find themselves in trouble, according to Shawn Goheen, CSA, life underwriter training council fellow, partner at Goheen Insurance: A Simplicity Company.

Not Understanding Investments Thoroughly

It’s easy to get zealous about exciting investment opportunities when you finally have the money to be a serious player in the space. But overambitious thinking is a trap; you need to be as discerning as ever about investment opportunities when you’re rich.

“Venturing into unknown business territories without a clear understanding can lead to significant losses,” Goheen said. “Before investing, especially in volatile or speculative projects like real estate in disaster-prone areas, it’s crucial to conduct thorough research or consult with experts. Learning to decline opportunities that don’t align with your knowledge or risk tolerance is equally important.”

Not Assembling a Tailored Financial Team

Once you have accumulated wealth, you need to appoint a team of experts to help you manage and steer it. Not doing so is a big mistake that rich people often make.

“High-net-worth individuals require a collaborative and specialized financial team to address their unique needs,” Goheen said. “The right combination of advisors — including estate planners, tax professionals and investment advisors — can provide comprehensive support and prevent costly oversights.”

Not Engaging Specialized Tax Professionals

Similarly, it’s important for rich people to get an accountant who is comfortable with and experienced in navigating wealth, which carries unique complexities.

“Not all accountants have the specialized knowledge required for complex tax planning,” Goheen said. “Hiring a tax planner with expertise in navigating the tax code can result in substantial tax savings, leveraging legal strategies to keep more of your wealth within your estate.”

Not Leveraging Tax-Mitigation Strategies

Among the many perks of being rich is that you have some exclusive ways to mitigate your tax burdens. Yet many wealthy folks don’t pay attention to opportunities for tax mitigation that could save them heaps of money.

“Engaging in tax-mitigation strategies, such as charitable giving, investment in tax-advantaged accounts or strategic use of deductions, can significantly reduce tax liabilities and create more flexibility to utilize savings elsewhere,” Goheen said.

Not Implementing a Strategic Approach to Risk

Being rich is not a shield against risk. You still need a strategic approach to handle this reality — same as anybody else.

“Many people think they’re going to spend their last dollar on their last day; however, that is not the case,” Goheen said. “Avoid unnecessary risks in your investment portfolio by establishing a comprehensive estate plan and employing strategies to reduce or eliminate taxes as much as possible.”

Not Prioritizing Estate Planning

You won’t be around forever, and you need to make a plan for the passing on of your wealth sooner than later.

“Failing to plan for the distribution of your wealth can lead to increased federal and state estate taxes as well as family disputes over who gets what,” Goheen said. “An effective estate plan, including a will and trusts, ensures your assets are passed on in an orderly and tax-efficient manner, reflecting your personal desires and family needs.”

Not Exercising Caution With Friendships and Business

The saying goes that money and friendship don’t mix. It may sound like a tired cliché, but it’s also a true story for many wealthy folks.

“Mixing business with personal relationships can jeopardize both,” Goheen said. “If things go poorly, it is hard to recoup the relationship. Many will blame the person who brought them into the deal, but ultimately, they must take the good, bad and ugly that comes with it. This can become complicated because if you’ve given money to a friend or they’ve given money to you and it gets lost, it’s hard to regain that trust.”

If you’re certain that a business deal with a friend is the right move, go about it the right way.

“Ensure all agreements are clearly documented and consider involving a neutral third party to assess the deal’s fairness and potential,” Goheen said.

Not Diversifying Investments

All financial experts harp on the importance of diversifying their investments, and for good reason — but even some rich people fail to take this necessary advice.

“Concentrating your wealth in a single investment or business increases risk,” Goheen said. “Diversification across different asset classes and establishing legal entities like corporations (C corp or S corp) for asset protection can provide a safety net for your financial portfolio.”

Not Continuing To Build Financial Literacy

“As your wealth grows, so does the complexity of managing it, which can lead to costly fiscal mistakes,” Goheen said. “Keeping abreast of financial laws, investment strategies and tax planning is crucial. Consider continuous education or partnering with experts to navigate the complexities of wealth management effectively.”