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I love the show Shark Tank. If you’re not familiar with it, there is a panel of five investors (“sharks”). Each week, they give entrepreneurs an opportunity to pitch why these sharks should invest in their companies.
Needless to say, during the pitches, the sharks make many pithy and funny comments, whether it’s Kevin O’Leary touting his knowledge of expensive wine, Robert Hershovic discussing his love of fast cars, or even Mark Cuban emphasizing his ownership of the National Basketball Association (NBA)’s Dallas Mavericks. It’s fascinating to hear their unique perspectives and business acumen. Mark Cuban refers to the show as the “New Age lemonade stand”.
Each week, I tune in to learn a little about business and also, of course, for entertainment. Truthfully, I also like to hear what very rich and successful people decide to spend their money on. So, I thought today I’d bring the ten money mistakes many rich people live by.
1. Rich people don’t spend everything they make.
When I teach Reaching FIRE, I come across people that really struggle to save for their future. Oftentimes, they do not like their current jobs. Their only outlet for happiness may be spending on themselves. In turn, that creates a vicious cycle of dependency on an unenjoyable job to fund a lifestyle to forget about that terrible job. This is a miserable existence. It often leads to spending all of their earnings each month.
Successful people, on the other hand, often times obtain jobs that they love. So in contrast, they may not feel the need to overspend in order to bring joy in their lives.
But, what if you don’t love your job?
You can still bring happiness to your life without spending money. Seek out activities and hobbies that don’t involve large expenses. You can hike in the great outdoors, play board games with friends, or even curl up to read a good book from the library.
With the money you save, you increase your savings so that you can hit your retirement goals later in life.
2. Rich people don’t squander opportunities to increase their wealth.
When rich people become wealthy, they don’t stop at their well-paying jobs. They are on the lookout to improve themselves, including increasing their financial status. From looking for ways to receive a promotion to creating side businesses, they strive to increase their income at a rate higher than their lifestyle expenses.
Where can you begin if you want to increase your wealth?
Start reading. Rich people are constantly reading to improve their acumen. According to research, 85% of rich people read two or more educational, career-related, or self-improvement books per month. Benjamin Franklin was known for saying, “An investment in yourself pays the best interest.”
Did you know that:
Elon Musk was raised on books.
Mark Cuban reads three hours a day.
Bill Gates reads 50 books a year.
These are just a couple examples of rich people who see the value in reading to further improve themselves.
3. Rich people don’t buy shoddy quality.
Warren Buffett said it best: “Price is what you pay. Value is what you get.” Years ago, a friend of mine bought a Daewoo car. He bragged about the great deal he got on his brand-new vehicle.
He was convinced that brand-new cars were the only way to go and scoffed at my 10-year-old Mazda. His thought was there was no way that my Mazda could be as reliable as his new car. However, soon after purchasing it, his Daewoo basically lived in the mechanic’s shop. He ended up selling the Daewoo for a massive loss shortly after college. Meanwhile, my Mazda lasted me another five years. I easily beat him when it came to cost-per-mile value in that instance.
4. Rich People find ways to make money work for them.
“How many millionaires do you know who have become wealthy by investing in a savings account? I rest my case.”
— Robert G. Allen, author
Have you ever noticed that investment opportunities seem to fall into the laps of rich people all the time? Every time I watch Shark Tank, there is always one deal that seems like a no-brainer to me. I always think to myself, I wish I was in the position to be able to invest in one of these products or services. Since I’m not quite in that position yet, one way that I am able to deploy my cash is through investing.
One of my favorite things about owning stocks in the stock market is receiving quarterly dividends. Since I own a couple of ETFs and a small number of other companies, within 10% of my portfolio, I basically receive a dividend every single month. For the month of December, we made $600, simply because we own some stock. My hope is that these dividends continue to increase. In 2017, my portfolio was up almost 7% from the previous year. Eventually, I hope to live off my dividend income one day.
5. Rich people live within their means.
Sure, it may seem glamorous to spend a ton of money from time to time. Everyone has seen the Oscars, when actresses are dripping with diamonds and designers. But what you may not see is the security guard in the background since many of the pieces are actually borrowed and not purchased.
The only way that rich people stay rich is by living within their means. They must stay within their budget and know when to say “no” to certain items.
Actress Sofia Vergara seems to be handling her finances well: “I like business, and the truth is I save way more than I spend. I invest. I plan for the future. I have a special eye for opportunities and work harder than anyone might expect.”
6. Rich people do their homework.
“Rule number one is never lose money, rule number two is never forget rule number one.”
Rich people oftentimes avoid get-rich-quick schemes because they know that it if sounds too good to be true, it probably is. They do their homework and research the ins and outs before investing. They realize how precious their money is and don’t throw it away on unwise investments. Their investment decisions take into consideration the calculated risks involved.
On top of that, they spread out their risk. They have the right automobile, home, and even life insurances so that they have proper protection in case of an unfortunate event.
7. Rich people don’t ignore their financial situation.
A lot of people are content staying in the dark about their finances. What they don’t know can’t hurt them, right? Wrong. Most wealthy people really understand their financial situation. They review their accounts on a weekly basis including their investments, credit cards, and bank accounts, to ensure that there aren’t any errors or omissions. This is a great habit. You can greatly reduce any fraud and challenge any surprising fees in your statements.
8. Rich people know what they know and get advice when they don’t.
Do you know who is the worst at stock-picking? Doctors. Doctors are notoriously bad investors due to their over-confidence in their abilities (aside from medicine).
Most rich people acknowledge that they don’t know everything in all fields, so they seek others who are more qualified than themselves. Even Warren Buffett has a right-hand man who he consults with before he makes large purchases at Berkshire Hathaway. Anybody that thinks they can do it alone without needing help is a fool.
9. Rich people take responsibility for their actions.
While rich people seek out others for advice, they don’t cede full control over to them. They take responsibility for the decisions that they make after receiving the outside help or advice. They realize that nobody cares about their money more than themselves.
10. Rich people figure out ways to get it done.
Rich people don’t dwell on excuses. Instead they find creative ways to be resourceful. I am in the middle of reading Shoe Dog by Nike founder Phil Knight. He writes about how he was running a company called Blue Ribbon when his supplier, Tiger Shoes, decided to renege on his deal. He decided that he had come such a long way in the shoe business and wouldn’t turn back. So, he created his own brand, Nike, and the rest is history. Moral of the story? Never give up.