Perhaps you’ve spent years building and growing your wealth through hard work and mindful spending practices. Perhaps you sold your company to Microsoft or Amazon or had a successful IPO. Perhaps you inherited your money or won the lottery. Whatever your path to riches, you now have money in the bank, and would prefer to keep it there. So how can you avoid the mistakes of those who have made a fortune and then lost it all? Here’s a list of five common financial pitfalls to avoid, helping you stay healthy, wealthy, and wise.
1. Does lightning strike twice?
Even many of the most astute businesspeople who have hit it big have then lost it all thinking they could do it again: Mark Twain, George Foreman, and Nicholas Cage, to name a few examples. Even Halsey Minor, founder of CNET, whose net worth exceeded $1.7 billion in 2008, was filing for bankruptcy by 2013. Diversify, understand every investment you make, and don’t stretch your reserves.
2. Assets should work for you, versus you working your assets off
Who wouldn’t love a beach house in the Hamptons, a villa in Italy, and a ski chalet in the Swiss Alps? When you are overweight in nonproductive assets that require maintenance and possibly staff to upkeep, you can create unsustainable living expenses for homes you rarely use. So, yes, by all means: Splurge on a few nice things that you know you can afford, but make the rest of your assets work for you, not create a drag on your net worth.
3. Selfish sometimes can be smart
Last wills and testaments are great places to leave assets to loved ones and/or charities. But you should postpone large monetary gifts until after you’ve bought the proverbial farm. Be open and clear about your wishes, and communicate to all parties involved that you’re planning on leaving a gift. This way, you can get the recognition that goes along with a gift, and be assured you’re keeping assets for as long as you will need them.
4. Beware of investment FOMO
Acquiring and maintaining wealth is a lifelong pursuit. Don’t get caught up in the ”get-rich-quick” schemes, or the latest financial fad. Trendy investments attract loads of people interested in making a quick buck — but this can cause price inflation, which could leave you holding worthless investments when the bottom falls out of the market. There is always time for the next investment — take a deep breath, and make sure you’re not rushing to do the new thing because you have a case of FOMO (fear of missing out).
5. To host or no—host? That is the question
You’re kind, you’re generous, and you have money. Does that obligate you to always pick up the tab — whether it’s dinner at Canlis or the pricey vacation for four? Consistently paying for others isn’t sustainable; can be a hidden siphon on your accounts; and, frankly, isn’t much fun. Leave the pay-to-play Entourage to HBO. Feel free to treat on special occasions, but don’t think you’re somehow beholden to pick up the check just because you have more in the bank.
Kurt Biederman is a relationship manager and wealth planner at Coldstream Wealth Management in Bellevue. Before joining the company in 2012, Biederman practiced law, specializing in advising affluent Northwest families in all areas of estate and gift planning. He lives in the Maple Leaf neighborhood of Seattle with his wife and three daughters and enjoys the local sports scene, traveling, and running around Green Lake.