5 Things Rich People Buy That Jeopardize Their Wealth


Astronaut Images / Getty Images/iStockphoto

Astronaut Images / Getty Images/iStockphoto

Having the resources to afford a new home or live comfortably is the kind of thing most people dream of. Reaching money milestones like these is a big deal, but unfortunately, even high-income people can frequently jeopardize their wealth potential by falling into poor financial traps.

Learn: How To Invest in Gold
Find Out: How To Get Cash Back on Your Everyday Purchases

“In the world of finance, high earners often make the mistake of acquiring depreciating assets like luxury cars or extravagant real estate, hindering their ability to accumulate wealth,” said Ben Gold, founder of Recommended Home Buyers. “Misguided investments and excessive spending on non-essential items can impede the journey to financial freedom, even with a substantial income.”

Experts say that understanding and avoiding these financial pitfalls can pave the way for the wealthy to achieve lasting financial security.

Sponsored: New Chase checking customers enjoy a $200 bonus when you open a Chase Total Checking® account and set up direct deposit.

Lavish Homes

While a nice house in a prestigious neighborhood might be a status symbol, it’s often a large drain on one’s resources, according to Michelle Delker, CFO, CPA, founder of The William Stanley CFO Group. “Upkeep, property taxes, insurance, and interest payments on home loans can add significantly to monthly costs,” she said, noting that more modest living arrangements could lead to substantial savings that could be invested prudently.

“Purchasing a large, lavish home is often seen as a sign of wealth and success,” said Keith Sant, CEO and investment advisor at Kind House Buyers. However, he added that these homes often come with high maintenance costs and can tie up a significant portion of one’s wealth in a non-liquid asset. “Instead of focusing on the size and grandeur of their homes, wealthy individuals prioritize investing in income-generating properties or diversifying their portfolio with various types of real estate.”

Best Bank Account at Wells Fargo: A Checking Account With a Waivable Monthly Fee and a $300 Sign-Up Bonus

High-End Automobiles

Luxury cars might look attractive, but they depreciate quickly and require costly maintenance. Delker noted that a more cost-effective approach would be to invest in a reliable, fuel-efficient car and put the difference to work in a portfolio that generates appreciating returns.

“Many people associate luxury cars with wealth,” said Shaun Martin, CEO of We Buy Houses In Denver. But he noted that these high-end vehicles can quickly become a financial burden. “Rich individuals often purchase expensive cars as a status symbol, but the cost of maintenance, insurance, and depreciation can add up over time.”

Expensive Clothes and Accessories

Designer clothing, while a sign of affluence, tends to become outdated rather quickly due to changing trends, said Delker. These depreciating assets consume a big chunk of money that could have been invested or saved for better long-term wealth creation.

“Rich people often spend large sums of money on designer clothing and accessories, thinking that expensive brands will make them look more affluent,” said Evan Tunis, president of Florida Healthcare Insurance. He noted, however, that these items are often overpriced and lose their value quickly. “Instead of investing in quality pieces that will last, they fall into the trap of constantly buying new designer items to keep up with trends.”

Ultra-Expensive Vacations

While rest and recreation are essential, splurging on high-priced trips can also inhibit wealth accumulation. “Opting for modest vacation plans can ensure proper relaxation while preserving funds for investment,” Delker highlighted.

Tunis agrees. “Rich people often take it to the extreme by spending a significant amount of money on extravagant trips. This can include private jet rentals, five-star hotels, and exclusive experiences. While these vacations may be enjoyable, they drain their wealth instead of growing it.”

Skyler Fernandes, financial advisor and founder of Finally Fund Admin, said it’s not just about the tangible cost of these purchases — it’s also about the opportunities missed. High earners may inadvertently overlook the concept of opportunity cost when making lifestyle choices. He added, “For instance, opting for an extravagant vacation might mean missing out on an investment opportunity that could have yielded substantial returns over time.”

Too Many Luxury Items

High-end electronics, artwork, gourmet dining and other luxury goods may seem like marks of a wealthy lifestyle, but they do little in increasing one’s net financial worth, say experts. “Instead, deploying these funds into investment vehicles can help grow portfolios and increase cash inflow,” said Delker.

Additional Money Mistakes of the Wealthy

Failure to prioritize savings and investments for the future can leave wealthy individuals vulnerable to economic downturns or unexpected expenses. Here are some non-purchase mistakes that rich people tend to make.

Ignoring Investing Opportunities

According to Delker, many people with high income don’t invest wisely, either because they lack knowledge or they’re comfortable with their current earnings and lifestyle. “Taking the time to understand and utilize investment channels can multiply wealth exponentially over time.”

“It’s crucial for the affluent to focus on prudent investments, diversify their portfolios, and avoid overcommitting to assets that don’t contribute to long-term financial growth,” said Gold. He believes it’s crucial to embrace a mindset of strategic wealth-building rather than succumbing to societal pressures for extravagant purchases.

“In my experience, early in my career, I witnessed the financial challenges faced by high-income earners who neglected sound financial principles,” Gold explained. “This experience fuels my passion for guiding others to make informed financial decisions.”

Poor Investments

On the flip side, even if you have a high income, investing your money in the wrong places can quickly deplete your wealth, explained Linda Chavez, CEO of Seniors Life Insurance Finder. “Many wealthy individuals are not well-educated in terms of investing and may end up making poor investment decisions that ultimately harm their financial security.”

To avoid falling into this trap, she said it’s important for wealthy individuals to educate themselves on different investment options and consult with a trusted financial advisor before making any big investment decisions.

Failure To Plan for the Future

“Many wealthy individuals focus on enjoying their wealth in the present, without considering their future financial needs,” said Chavez. “This can lead to a lack of preparation for unexpected expenses or retirement.”

For this reason, she stressed that it’s important for high-earners to have a solid financial plan in place that takes into account their long-term goals and potential future expenses. She recommends creating an emergency fund, investing in retirement accounts, and planning for potential healthcare costs.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: 5 Things Rich People Buy That Jeopardize Their Wealth


Source link