We often associate wealth with financial expertise, but this could not be further from the truth. High net worth people are not immune to making mistakes. In fact, they make just as many mistakes, if not more than everyone else.
And the worst part about it is that these mistakes they make can be even more costly due to higher dollar amounts behind the mistakes.
Let me help you avoid this by walking you through 9 of the most common mistakes I see high net worth millennials make.
Note: Learn from these. You can easily avoid them!
1. Thinking Their Income Will Always Be There
This might apply towards people with high incomes more than people with high net worths. But regardless, this group of people are taking on a huge risk assuming that their income will always be there. There are 3 main ways income can be lost:
- Loss of job – Plenty of high income folks get cut when businesses are not doing well. This is why diversifying, building up assets, having an emergency fund, etc. is crucial.
- A disability putting you out of work – 1/4 millennials will have a disability that stops them from working. The stats are scary. Having disability insurance in place to protect your income can be crucial!
- Business Failing – Many high net worth accumulators are business owners. This means most of their wealth is in the business and their income is tied to it. That concentration brings on a lot of risk. Managing this business well and diversifying as you earn is crucial to keep you on a good path. Do not just use your business as a piggy bank.
2. Making Their Finances Too Complex
This is something I see way too often, people start making good money and their wealth builds. And because of this, they think they need to start investing in anything and everything.
Anytime a friend or someone they know comes with a business idea, they get involved. And then all of the sudden their balance sheet is all over the place. They have little organization or coordination, and oftentimes even lack liquidity.
Be careful doing this! You do not need to invest in anything and everything. Oftentimes the best strategy is to keep things simple. You do not want to get burned.
3. Taking On Too Much Unneeded Risk
As your wealth builds, you have the ability to take on more risk, but you also typically do not need to take on that additional risk. A strategy I like to use, is to invest in a diversified portfolio with the dollars needed for your key goals: kids college, retirement, etc. to make sure you are on track.
Then you can take some added risk on additional dollars if you really need to or want. But… remember you do not have to do this just to hope to get even wealthier. Sometimes it is not worth the added risk.
4. Inflating Their Lifestyle Too Fast
Inflating your lifestyle too quickly is a huge risk. What often happens is that people start making a higher income quickly and they inflate their lifestyle right away with it. Then, all of the sudden, that income drops by 25-50% and they are stuck. They have a huge mortgage, large car payments, private school, etc. and they are stuck. If you are a business owner, in sales, etc. take your time inflating your expenses. You do not know how long that income will last. You do not want to find yourself in the position I described above.
As your income grows, make sure you keep a high savings rate. I like for all my clients to have a minimum 20% investment rate, but more is always better to give you a cushion and push you further ahead.
5. Not Having The Proper Insurances
One of the fastest ways to let your wealth get destroyed is by not having the proper insurances in place. You never know what can happen. You could:
- Pass away while your family still needs more income
- Become disabled and not be able to work
- Be sued
- Be in a huge car accident that kills someone
These are all horrible things to think through, but you need to as they all do happen.
Making sure you have the proper insurances in place is crucial. But do not stop there, you also need to make sure you have the proper amounts of coverages as well.
Here are the most common one’s you need to consider:
- Policies on your rentals
- Policies for your business
- And potentially others depending on your situation
6. Not Having Estate Planning Done
Estate planning is crucial for everyone, but even more crucial for people with high net worths. I wrote a 5 part estate planning series the last couple months that you can check out here (starting with part 1).
Getting your estate planning done is about making sure you pick:
- Who makes medical decisions for you
- Who makes financial decisions for you
- Where your kids, pets, etc. would go
- Where your assets go
And that is just the basic foundational pieces. After that, you can start to consider utilizing trusts to avoid probate. And then can even utilize other tools for privacy, estate tax benefits, etc.
Do not neglect this!
7. Not Having The Proper Asset Protection Pieces In Place
Most think asset protection is just about insurances, but it’s also about the right legal structures in place. This could be utilizing LLC’s in your businesses, rentals, etc. It could also be about using the proper trusts’s for privacy and to move things out of your estate. All of these plus insurances are key to having proper asset protection planning done!
8. Being Too Illiquid
This is one I see way too often. It oftentimes goes hand in hand with complexity.
What happens is people with a lot of income start investing in rentals, commercial real estate, private investments, land, etc. all investments that can be really illiquid. This can work fine when things are going well, but if you find yourself in a spot where you need liquidity, this can also be really bad.
I have worked with a few clients coming in in this position, and let me tell you, they are not happy. They are anxious. They are stressed. And they would not put themselves in that position again if they could rewind time. Learn from them! You need to invest well while also maintaining some liquidity for tougher times in life. You never know what will happen.
9. Thinking They Can Do It All
Way too many high income millennials try to do it all themselves when in reality it would be better to outsource it. We can really only own 3 key things in our lives. For most that is business, family, friends, health, etc. You have to focus your time on where it is best spent.
And If you are a business owner, in sales, etc. your time is extremely valuable. Anytime you are doing something else, you are impacting the amount of money you can bring in. Use your time where it is best spent and outsource the rest.
These are the 9 most common mistakes I see high income/high net worth millennials making. Please. Please. Please. Learn from these. You can easily avoid the mistakes listed above!
If you are a high income millennial and need a financial planner, head on over to allstreetwealth.com and apply to work with us. We are currently booking new clients for November and have 3 slots left for the year.
Disclaimer: None of this should be seen as advice. It is all for informational purposes only.