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7 Behaviours that You Must Avoid to Become Rich!

Created on 23 Jan 2024

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Updated on 24 Jan 2024

7 Wealth-Draining Behaviours that You Must Avoid to Become Rich!

“Good investing is not necessarily about making good decisions. It’s about consistently not screwing up.”

I stumbled upon a gem of a quote in Morgan Housel's "The Psychology of Money" that really resonated with me. As I kept reading, I found more interesting quotes.

So, I thought I'd share some and talk about 7 common habits to avoid that can result in financial strain, reduced quality of life, emotional stress, strained relationships, and potential legal consequences.

Investing wisely and preserving wealth can be a challenging task. While external factors like market fluctuations and economic downturns are often blamed for wealth erosion, it is essential to recognise that our behaviours can also contribute significantly to financial losses.

1. Chasing Top-Performing Investments

As the quote shows, trying to continually invest in whatever is making the most money right now can be a problem. Buffett's story suggests that waiting and being patient are big deals for making a lot of money.

As the quote shows, trying to continually invest in whatever is making the most money right now can be a problem. Buffett's story suggests that waiting and being patient are big deals for making a lot of money.

One common behaviour that can lead to wealth depletion is the tendency to chase after top-performing money managers and markets. 

Despite the warnings that past performance does not guarantee future results, many investors find it challenging to resist the allure of consistently high returns. 

Moreover, the top achievers in the market tend to change every ten years or so. For example, technology was all the rage in the 1990s, while banking and commodities were big in the early 2000s. And in the 2010s, FAANG stocks (Facebook, Apple, Amazon, Netflix, and Google) were all the buzz.

But at the same time, constantly switching from one top performer to another incurs transaction and tax costs, ultimately hindering wealth growth, so what can be done? Instead, one can consider investment options like index funds that reliably capture market returns at lower costs.

2. Overemphasising a Single Asset

This quote reminds us not to put everything at stake, especially when we already have what's necessary. It's like saying, don't gamble what you have for something you might not even need.

This quote reminds us not to put everything at stake, especially when we already have what's necessary. It's like saying, don't gamble what you have for something you might not even need.

Think of it like putting all your money into just one thing that made you rich. It might have worked before, but it's risky. 

Instead, it's smarter to spread your money across different things. That way, it doesn't affect everything if one doesn't do well. Don't play the money game like a rookie; level up to the wise guy status. 

3. Overspending and Sustainable Withdrawal Rates

Flaunting wealth doesn't make it last. To keep your money safe, it's smarter to spend it wisely.

Flaunting wealth doesn't make it last. To keep your money safe, it's smarter to spend it wisely.

No matter how rich you are, Overspending can make your money vanish quicker than you think. In a world where there are many tempting things to buy, it's important to limit how much you take out. 

Consider establishing a reasonable percentage, such as 3% per year of your investment portfolio. This will help you maintain a balanced lifestyle without compromising your wealth.

4. Pre-Tax Returns vs. After-Tax Returns

This quote says to be ready for surprises even if you've planned everything perfectly. Now, let's connect this wisdom to our topic.

When it comes to investing, people often talk about pre-tax returns- basically, how much money your investment makes before taxes. But here's the catch: taxes can take a chunk out of those gains, leaving you with less than expected. It's like planning for one thing, but reality turns out different.

So, when you're looking at investment options, it's crucial to check not just the pre-tax returns but also the after-tax returns. This way, you'll have a clearer picture of how much money you'll actually end up with after taxes have done their thing.

5. Managing Risks Beyond Investments

This quote reminds us that even though our money experiences are a tiny fraction of global events, they greatly impact how we view the world.

This quote reminds us that even though our money experiences are a tiny fraction of global events, they greatly impact how we view the world.

In managing risks beyond investments, such as planning for the future of your assets and securing solid business agreements, working with a comprehensive wealth advisor is crucial. 

They can help you navigate these aspects effectively and protect your wealth.

6. Protecting Yourself from Cyber Threats and Fraud

Cyber threats and fraud can seriously mess with your money. High-net-worth individuals often get targeted by hackers who find weak points in their online presence.   To keep your wealth safe:

Clearly, things may not be exactly how they appear. When it comes to your digital safety in today's world, it's not just about physical locks. 

Cyber threats and fraud can seriously mess with your money. High-net-worth individuals often get targeted by hackers who find weak points in their online presence. 

To keep your wealth safe:

  1. Avoid using public computers or insecure networks for financial transactions.
  2. Enable two-factor authentication for added security.
  3. Always ensure your wealth advisor double-checks with you before making any transfers.
  4. Be cautious of fraud, even from people you trust, as they can sometimes engage in financial misconduct.

7. Financially Empowering Future Generations

Understanding that planning for the future is tricky because our goals change as we go along, so ensuring our wealth lasts for generations is crucial. Passing on wealth successfully is challenging- studies reveal that 70% of wealthy families can't keep it beyond the first generation. 

Understanding that planning for the future is tricky because our goals change as we go along, so ensuring our wealth lasts for generations is crucial. Passing on wealth successfully is challenging- studies reveal that 70% of wealthy families can't keep it beyond the first generation. 

Parents need to teach their kids about hard work, responsibility, and being financially independent to break this pattern. It's not just about planning the estate; it's about raising kids who can handle money wisely.

The Bottom Line

In the end, it is not just about investing smartly but also avoiding certain behaviours that can drain your wealth. It's essential to manage your risks carefully. Removing these pitfalls can increase your chances of maintaining and growing your wealth.

Remember, preserving your wealth is a journey that requires discipline, adaptability, and informed decision-making

By making conscious choices, you can navigate the complexities of wealth management and safeguard your prosperity. I hope these tips are helpful!

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Sakshi Dhakre

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Sakshi is an adventurous spirit who enjoys both the intellectual stimulation of Finance and the sensory experiences of good food and nature’s beauty. She has a passion for delving into complex financial topics and distilling them down into easy-to-understand insights. When she's not poring over financial reports, you might find her exploring a new corner of the city, trying out new restaurants and cuisines or admiring the beauty of the night sky.

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