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The skills that helped you become wealthy are often not the same skills needed to build and secure your wealth. There is an entirely different level of training and curriculum for that.
Take, for example, Mike Tyson. While his current estimated net worth of $10 million is nothing to scoff at, it is a shadow of his peak net worth of $300 million. Despite his wealth, Tyson declared bankruptcy in 2003 after years of financial struggles and poor financial management.
His story is a reminder that without proper financial planning, even the wealthiest individuals can find themselves underwater. Whether it’s one big misstep or a succession of small misjudgments, financial mistakes will erode your wealth, which means you’ll have to work longer before you can retire or settle for a less comfortable retirement life.
In this article, we’ll discuss the common mistakes wealthy clients make and provide tips on how to avoid them and keep your retirement schedule on pace!
3 common financial pitfalls of wealthy people
The first step to fixing a mistake is identifying and realizing you’re stepping into one. Here are the three most common gaffes that wealthy people should immediately correct.
Mistake #1: Over-relying on a single investment
Concentration risk refers to over-relying on a single investment or asset class. It’s true that some fortunes were due to the success of one investment or business venture; however, maintaining this wealth requires diversification.
Diversification is a strategy that creates a mix of various investment vehicles within one portfolio. In effect, this spreads the risks to multiple assets so that if one tanks, the whole ship won’t sink.
Mistake #2: Overcomplicating finances
Wealthy clients often overcomplicate their finances through complex investment strategies and financial structures. Here are a couple of tips for streamlining your financial plan.
- Avoid unnecessary investments. Diversification is one thing, but investing unnecessarily into many different assets is another. Each investment should serve a purpose in your overall financial strategy—if it doesn’t, it might add unnecessary complexity and should be reconsidered.
- Regularly review and adjust. Your life and career are going to develop differently than you intend. Your financial plan may need some adjusting, too. But who is going to help you navigate each change?
These periodic evaluations are opportunities to reassess your financial health, making necessary adjustments based on changing circumstances and goals.
It’s like a medical check-up; ignoring it can lead to a financial “disease" that could have been prevented or treated with early detection. If you don’t do evaluations regularly, your financial advisors could miss opportunities to deploy intelligent strategies because they were unaware of your various life events.
Mistake #3: Ignoring the need for liquidity
Liquidity refers to the ease with which an asset can be converted into cash without affecting value. For example, publicly traded stock is highly liquid; real estate, on the other hand, is much less liquid. Liquidity is essential for when you need access to your savings.
This doesn’t mean there isn’t a place for illiquid assets; however, be cautious about being highly illiquid.
Tencap Wealth Coaching is here to help
If you want to work with a financial planning professional to ensure your financial success, Tencap Wealth Coaching is here to help.
It can be critical to engage the help of a trusted financial planner who can develop and manage a financial plan tailored to your specific needs, wants, and goals and deploy intelligent strategies aligned with the chapter of your career or earnings.
At Tencap Wealth Coaching, we’re focused on helping you achieve all your financial goals and more through academically sound financial planning. From investment management to retirement planning and tax strategies, our financial advisors are here to manage the complexities of your money and allow you to relax and enjoy life.
Learn more or schedule a no-cost introductory meeting here.
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