It’s easy to think rich people are smarter than the rest of us – after all, they’ve obviously found the better way, right?
That all may be true, but a lot of times having a lot of money, particularly if you come into it quickly, can dull good sense, and put the ego in charge.
For that reason, a lot of rich people buy things they probably shouldn’t.
This is more than an interesting question.
If you’re planning to become rich yourself, it’s important to have a firm grasp on how you’ll spend your wealth once you achieve it.
You certainly want to be able to enjoy at least some of it, but you also need to be aware of that time honored saying, “a fool and his money go separate ways”.
There are few crueler experiences in life then coming into a lot of money and then losing it.
In order to avoid that fate, think about some of the things rich people buy – they probably shouldn’t.
Here are some glaring examples…
1. Things that Scream “I’m Rich!”
It’s one thing to add some luxuries to your life once you hit pay dirt, but sometimes as the bankroll grows, the ego takes over. Rich people often surround themselves with plenty of stuff that lets everyone know they’re rich.
There are at least two reasons supporting this spending pattern:
- Drawing attention to themselves, and perhaps more important…
- Letting other rich people know they’re part of “The Club”
If you think about that for a bit, neither motivation actually creates a better life in any real way. They’re both really about making statements, that makes the new rich person feel better about him- or her-self.
Better Idea: It might be more productive for rich people to add a few luxuries to their lives – those that they think will do the most to improve the quality of their lives – and otherwise live closer to the ground. No matter how wealthy you are, you should never define yourself by your wealth. And when you feel driven to surround yourself with the trappings of wealth, that’s exactly what you’re doing.
A Still Better Idea: After adding a few important luxuries, dedicate more of your income to charitable donations. Not only is that a better use of your wealth, but it will earn you more respect from others, while using your financial blessing to help others.
2. Things that Make them Into a Target
Being wealthy comes with an ironic twist. On the one hand, your wealth can insulate you from crime and from dangerous situations. Think living in a gated neighborhood, having a home security system, and even a bodyguard.
But on the other hand, if everyone knows you’re rich, you’re putting a target on your back and saying – “valuables here – come it get it (or me)”.
The situation is even more extreme when you have children or other dependents. The dependents can become targets for kidnappers. No, this is not a pleasant thought in connection with being wealthy, but it is a concern if you have great wealth. After all, you present a richer target than a middle class person living an ordinary life.
Other rich people and adoring fans aren’t the only people who will be interested in your wealth.
You can make yourself into a target by moving to a larger home, driving a much more expensive car (or a fleet of them), wearing top name clothing and high-priced jewelry, and even frequenting high-priced venues.
Better Idea: No matter how much money you have, it’s always best to blend into your surroundings. Not only will this reduce your image as a target, but it will also bring you the freedom that comes with anonymity. After all, if you look ordinary, you can go to all the places and do all the things ordinary people do.
3. Monuments to Make Them “Immortal”
Here’s a cold, cruel dose of reality: no matter how wealthy you are, you are still going to die someday. That means you are not immortal. It doesn’t matter how many buildings you buy or erect, or companies you buy, or university donations you make – all bearing your name in bold neon letters – you will never be any more immortal than the average person on the street.
So why pay for something you can never really have?
Better Idea: If you want to be remembered beyond the grave, think about giving money – or creating products and services – that will help to improve people’s lives. You can also establish charitable trusts that continue to fund your favorite charities even after your death. No, your name won’t be on any buildings, but your wealth will continue to affect people in profound and positive ways.
4. Conspicuous Consumption as a Lifestyle
When people become wealthy they often lose all sense of thrift. A modest home is seen as inadequate, and they move into a mansion. One car is replaced by a half-dozen. Clothing becomes custom-made, and money is spent maintaining a staff of domestic servants.
One of the more questionable services is hiring staff to raise their children. In a real way, that creates an ongoing disconnect between parent and child. If our children are our greatest legacy to the world, we should be raising them, not paying someone else to do it.
But that’s just one glaring example. A pattern of conspicuous consumption is consistent with all of the other negative money behaviors a rich person can engage in. And if preserving and growing wealth is at all part of the plan, conspicuous consumption will sabotage that effort.
Better Idea: Wealth – like fame – can be fleeting. If you build your spending patterns around the belief of perpetual wealth, the ride back down to the bottom will be much more difficult. In fact, so will your efforts to get back up to the top. Conspicuous consumption is like any bad habit – it costs a lot of money to support, and it distracts you from what’s really going on – or should be.
5. New Friends
Becoming rich can cause a lot of changes in a person’s life. This can include ending relationships with old friends (and even family members) in favor of new, rich friends. That strategy can go wrong on a number of fronts.
For starters, people who are drawn to you because of your wealth are rarely true friends. The potential is very high they’re mostly looking to see what they can get out of the friendship.
For another, surrounding yourself primarily with rich friends has great potential to increase your spending patterns.
Rich people are like everyone else – they often spend money trying to one up each other.
But the difference between the rich and the middle class is the competition comes with a much higher price tag.
You could end up severing very good relationships with people of modest means, in exchange for mostly superficial friendships that will cause you to spend more money than you should, and to accelerate the drawdown of your wealth.
Better Idea: A true friend is a good friend, regardless of their station in life. And you should never forget or where you came from, or abandon the people who you were with when you were there. Also, having friendships with people who are at much lower wealth levels can keep you humble and grounded. And you’ll need both, no matter how wealthy you are.
6. Great Big Toys
It’s okay to spoil yourself by having a few toys. But there have to be limits, no matter how wealthy you are. A not uncommon practice by the rich is to buy fleets of cars; but how many cars can you drive? Another common practice is maintaining multiple homes. It’s not unusual to see the very wealthy having like eight second homes. But again, how many do you need, and how much time are you spending in them?
Even if you’re rich, having too many possessions – especially superfluous ones – can complicate your life. If wealth doesn’t bring simplification to your lifestyle, then you’re missing something really big.
Better Idea: If you get bitten by the bug to buy a great big toy, research the cost of renting, rather than buying it. Not only will that usually save you money, but it will also allow you spend only as much money on a toy (or a second home) as you intend to use it. Also – renting toys enables you to cut expenses wherever you need to. Owning them, on the other hand, has a way of creating permanent fixed expenses.
7. Things That Don’t Hold Their Value
Cars are an excellent example. Boats are probably an even better one. You buy them brand new, then they drop in value from then on. It’s a way to slowly lose money.
Better Idea: Don’t ever let go of your inner bargain-hunter; it will continue to serve you well even and especially when you’re rich. Buying second hand is usually a better way to purchase depreciating assets.
8. What Every Other Rich Person Is Buying
“Keeping up with the Joneses” happens with rich people too, but the price tags are a lot higher. It can be complicated by two possibilities that can never be discounted:
- You may find yourself trying to keep up with people who are a lot wealthier than you are (forcing you to spend amounts that can threaten your financial position), or
- Keeping up with people who aren’t necessarily wealthy, but excel at looking like they are
Either situation is wealth-draining, and for no good purpose.
Better Idea: Wealth should be its own reward. Once you reach a certain level financially, you should no longer be emotionally tied to telling the rest of the world “you’ve arrived”. Your bank account should be all the validation you need.
9. A High Cost Standard of Living that Gradually Outstrips Your Wealth
Every now and again we hear about rich people who end up in bankruptcy. The list is long – professional athletes, musicians, entertainers, politicians, and other celebrities. Sometimes it even happens to apparently savvy businesspeople and investors. Sometimes it happens because they make bad business deals, and sometimes because they are sabotaged by someone close to them.
But just as often as all of those combined, they could end up broke because they create a lifestyle that includes high fixed expenses that eventually overwhelms their incomes, and consumes their wealth.
We often wonder how people so wealthy could end up broke. But it happens all the time, and often it happens because the human capacity to want stuff grows faster than our ability to produce wealth.
Better Idea: Enjoy your life, but be careful along the way you aren’t creating a built-in high cost lifestyle. If you are wealthy, your ability to retain that status will depend heavily on keeping your cost of living below your income and wealth.
It sounds a lot like being middle class, doesn’t it? There’s a simple reason for that – the rules of the game don’t change just because the dollar figures are higher.
It’s something well worth remembering if you’re wealthy, or planning to become in the future.