Boris Becker and bankrupt? This might be your initial reaction after hearing the news that the Tennis legend has been declared bankrupt by a court in London over undisclosed sums of money he has owed to the London-based private bankers Arbuthnot Latham & Co, since October 2015. Sadly, however, this is what media reports are claiming, although Becker has said that he is ‘surprised and disappointed’ as there is only a dispute. Whatever be the case, this is not the first case of the rich and famous being humbled by financial ruin. Earlier also many rich people have either been declared bankrupt or have faced serious financial problems.
So, if you thought that only the common people like you and me may face financial problems and not the rich, then think again. For, even millionaires and billionaires are susceptible to money mistakes which sometimes land them in big trouble. It is a fact that nobody has seen his future and anything can happen with anyone. After all, we all are human beings. Still, there are some mistakes which can be avoided. Here we are taking a look at 3 money mistakes which even rich people often make and how to avoid them:
Spending beyond your means: They say, earning money is easier than managing it. It could not have been more true when we look at celebrities and business tycoons declaring bankruptcies all over the world.
“One can’t question the ability of earning these famous people have, but the way they manage their income is definitely questionable. Spending beyond your means is the easiest way to lose all your money. Spending means helping someone else keep your money. Therefore, help yourself by paying yourself fist. Investing 30% of your income is paying yourself. If you spend money on things, you will end up with things and not money,” says Atul Surana, Certified Financial Planner, Catalyst Financial Planning.
Going big and buying unwanted things: If you are a big businessman or a celebrity, you would definitely want to own a big house and a few fancy cars to match your social status. However, does that mean that you should also necessarily have 50 costly cars, a private plane or your own island somewhere? Aren’t things like these a waste of money? If someone is doing this, then he is not only putting his hard-earned money to some unproductive use, but is also inviting financial trouble for himself. If Salman Khan can happily live in a one bedroom apartment or Warren Buffett can live in his modest house he bought long back, then why can’t others also do it (unless you really need a mansion or a private island)?
Not planning ahead: It is good that you have acquired millions and even billions with your hard work and ability. Hats off to you! However, if you are not careful with your wealth and fail to plan for your future, then your financial future may not be secure. Just remember what happened to some of the Bollywood stars or cricket players once they stopped acting or playing cricket. Therefore, you must put your money to some productive use or invest it as per the financial goal of your life.
You also need to remember that the goal of investing isn’t entertainment or thrill, it’s to maximize return on investments. “Successful investing is actually uninteresting. It’s main requirement is perpetual laziness and inaction after you buy the right asset. Most people look for more drama, so they twist, interfere, and modify their investments as much as necessary and wipe out as much of their wealth as possible. If you want to do better than average at anything, you must do something that most people can’t. In investing, that means putting up with endless inactivity. It’s a serious competence. It is more important to know what not to do than what to do in investing,” advises Surana.
The only way to create wealth is to have a disagreement between your pride and your income. It is all about your savings rate. And the savings rate is just the gap between your pride and your income. Keep the former under control and nothing can erode your wealth!