The Forbes 400 list of the richest people in the world looks pretty stable to the unsuspecting eye. Jeff Bezos and Bill Gates make it to the top of the list year after year, recently joined by Elon Musk and Mark Zuckerberg.
However, looks can be deceiving, and while it may appear the rich have no trouble holding onto their wealth, in truth this isn’t the case.
Several people fell from the top of the rich list by the end of 2020, including Hui Ka Yan, chairman of Evergrande Group, one of China’s biggest real estate developers, and Harold Hamm chairman and CEO of American independent oil producer Continental Resources. Yan saw his fortune drop by $4.6 billion US (£3.4 billion), while Hamm lost $4.3 billion US (£3.1 billion).
Unfortunately maintaining wealth is much harder than creating it. Let’s explore why this is the case, and what can be done to prevent financial loss.
Why Maintaining Wealth Is Harder Than Creating It
Making a lot of money and being rich may sound the same, but they are in fact two very different things. People who have a high income have a stronger chance of becoming rich. However, they often face temptations to blow huge amounts of money on an extreme lifestyle. A mansion for example, or several expensive sports cars.
When you get used to having what appears to be an infinite amount of money, it’s easy to fall into the trap of believing you’re set for life. This is typically the downfall of many wealthy people, particularly those who have gone from living a modest lifestyle to suddenly having expensive luxuries overnight.
Master the basics
The ultra-wealthy reached their desired wealth by making careful, calculated decisions. They understand the fundamentals of being financially responsible, including sticking to a budget, saving, and investing. At the same time, consulting wealth managers can be a great place to start if you feel out of your depth.
A budget is essential to prevent impulse purchases and poor financial decisions. Set aside a percentage of your income for necessities, such as living costs, healthcare, and childcare, another percentage to save, another to invest, and a sensible amount to spend on non-essentials and luxuries. Your money is a tool to help you achieve your future goals, so you must spend it wisely and think about the bigger picture.
Be true to your values
Your financial activity should be influenced by your core beliefs and the things which are most important to you. This philosophy should be applied to spending, saving and any investments you may make.
Making financial decisions with your values in mind will mean you’re more likely to make positive choices and achieve the things you want further down the line.
Determine what your three priorities are in your life and assess whether these align with your spending habits. Do the same with your savings, making sure you’re putting away the right amount of money to achieve your saving goals.
Understand your triggers
Take some time to look over your bank statements from the last few months and mark any unplanned expenses or impulsive buys. Try to remember how you were feeling when you made each purchase. We often make poor financial decisions when facing strong emotions, particularly negative ones.
You may notice you spend more on your physical appearance after a relationship ends or are prone to expensive blowouts when feeling low. Being aware of your triggers can prevent you from repeating the same mistakes next time you have those feelings. Acknowledging the problem now can also allow you time to find alternative coping methods which have less of a financial impact.
