At one time, millionaire status was the dream. If you had a million dollars, you could live a lavish life filled with expensive cars, an oversized house, and no worries. However, inflation means that nowadays someone can easily blow through a million dollars in a matter of weeks. Simply paying cash for a house in many regions of the U.S. can wipe out most or all that money at once.
Holding onto your money means making wise spending decisions. It’s important to be thoughtful about your investments and spending, while also enjoying your earnings. Here are a few lessons former millionaires have learned the hard way. By reading up on them, you may be able to avoid making the same mistakes.
1. Instead of researching investments, you listen to your gut.
Risky investments can make you a large sums of money quickly, but far more often they’re how you lose large sums of money quickly. Research thoroughly before choosing an investment, even if you’re putting your faith in an experienced financial advisor. If you opt to go with an advisor, make sure you choose the right one and remain aware of what they’re doing.
2. Start a business with no experience in the space.
Maybe you’ve always dreamed of running a waterfront seafood restaurant but have never so much as washed dishes in a restaurant. Perhaps you want to try being a souvenir shop owner but have never worked behind a store counter, much less managed a shop.
Sinking massive amounts of money into a business you know nothing about is a likely way to never see that money again. Look, I’m not saying you stand no chance of success in a certain space just because you haven’t worked in that field before. But, you should at least consider your past experience as well as your interests when choosing a new business.
3. Trusting the people who love you all of a sudden.
Once word gets out that you have money, you may find friends and relatives pay much more attention to you. They may even come at you with tempting business ideas. Maybe they’re starting a new venture or they’ve found a lucrative new investment opportunity. You should be very picky here about what you take an interest in. As great as friends and family members are in your leisure time, mixing business and personal can easily lead to disaster.
4. Thinking you can afford that mansion.
The mortgage crisis revealed just how many people live beyond their means, especially where home ownership is concerned. That has not changed. A recent Harvard study found that 40 million people live in homes they cannot afford, based on their ability to put 30 percent of their income or less into their housing costs.
Related: Buying a House Is for Suckers
5. Just one wrong business partner.
At some point in your career as an entrepreneur, you’ll inevitably find yourself working alongside a shady character. If that character is your business partner, you could find yourself on a sinking ship. Before getting too deep into a business relationship with someone, make sure it’s the right person. If possible, agree to a trial arrangement where you determine whether you work well together before signing any official documents.
6. Keeping up with the Joneses.
Syndicated humorist Robert Quillen once famously defined Americanism as, “Using money you haven’t earned to buy things you don’t need to impress people you don’t like.”
We’re still doing that in spades. Often people purchase an overpriced car, house or electronics just to impress friends and neighbors, or simply to “keep up with” whatever everyone else is doing. Instead of spending money you should be saving, focus on being one of the many millionaires who is sitting on a pile of money instead of a pile of debt.
7. Getting careless online.
Identity theft is a serious concern, especially for those who have a bank account worth tapping into. While you may be able to recoup your losses if someone steals your money, you’ll likely find you waste valuable resources doing so. Protect all your electronic devices with strong passwords and use a VPN when your electronics are on unprotected public wi-fi networks.
8. Not investing at all.
If your dollars are in a standard checking or savings account, you’ll spend at a rate that far exceeds any interest you’re making on your money. Many experts say that at the very least you should put the vast majority of your money in a low-risk investment that will ensure your money is working for you. Otherwise, you’ll likely find that your million turns into half a million, then a quarter of a million, before you know it.
Whether you currently have a million dollars in financial assets or you hope to someday achieve that goal, it’s important to know the mistakes to avoid. My mother always told me that you’re not going to save any money if you’re busy spending it. Spending below your means and investing wisely are two sure ways to maintain a more than comfortable lifestyle well into retirement.