We all make mistakes -- personal mistakes, financial mistakes, and all kinds of other mistakes. We often assume that people who are smarter or richer or otherwise different from us don't make such blunders, but that's not very true. For example, even the wealthy make plenty of financial mistakes.
Interestingly, many of the mistakes rich people frequently make are ones that we may make, too -- and each mistake can be costly, potentially making retirement less secure. Here's a look at some of these blunders.
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1. Being underinsured
Insurance mistakes are made by people all along the wealth spectrum. No matter your financial condition, odds are that you can't imagine dying prematurely or having your home burn down.
If you don't carry enough insurance on your home, you may need a lot more money than you have in order to rebuild it. And if you're rich, rebuilding may require millions of dollars. If you die, so does the income you provide, which might be critically valuable to your family.
2. Overpaying for things
As people grow wealthier, they might feel less pressure to comparison shop, seek sales and bargains, and generally spend as wisely as possible. Many not-so-wealthy people also fail to get as much as possible out of each dollar. This leaves money on the table -- whether it's hundreds of dollars or hundreds of thousands of dollars.
3. Not being ready for emergencies
Millions of people -- even many who are wealthy -- don't have sufficient emergency funds. That's a risky way to live because even if you're pulling in a fat six- or seven-figure income, you might be in trouble if you're suddenly and unexpectedly out of that job. It's best to always have at least three to six months' worth of all non-negotiable living expenses available, in case disaster strikes.
4. Trying to keep up with others
This financial mistake can be chalked up to human nature: No matter our wealth, we see people living more luxuriously, and it makes us want to, as well. That can mean buying expensive cars, fancier homes, designer clothes, lots of jewelry, and so on. And no matter our wealth, it can hamper our ability to save more for the future -- if not driving us into debt. (Many of the neighbors you envy may well be underwater financially, after all.)
5. Not saving enough for retirement
Here's another mistake all kinds of people make: Not saving enough for retirement. Sure, you may have a lot more money than most people, but that means you'll probably want much more income in retirement, so you've got a big nest egg to build.
Each of us needs to take the time to develop a good retirement plan, estimating how much income we'll need in retirement and how we'll get it. It's often smart to set up multiple income streams, such as from Social Security, dividends, annuities, rental income, and so on.
6. Not updating asset allocations
This is a very easy error to make: It happens when you don't review your portfolio periodically to ensure that your money is still distributed in the way you want. Over a few years, for example, one stock may have grown to represent 10% of your portfolio. Some see no problem with that and want to let winners keep winning, but others will see that as risky, with too many of your eggs in one basket.
Similarly, you might want to have 20% of your non-cash assets in bonds and 80% in stocks, but over time, your stocks might come to be 90% of your portfolio. If so, rebalancing may be in order to get back to the asset allocation you want.
7. Not having an estate plan
Finally, there's estate planning. That involves having a will and other documents spelling out how you want your assets divided. It can also include a succession plan for your business and your advance medical directive, among other things.
You'd think that wealthy people would all be on top of this, right? After all, they probably want much of their vast riches to go to particular loved ones or charities. But plenty of rich folks neglect estate planning -- until it's too late.
Here are some successful people who died without a will: Jimi Hendrix, Howard Hughes, Kurt Cobain, Pablo Picasso, Martin Luther King, Jr., Prince, and Michael Jackson. Even Abraham Lincoln is a member of this club, along with Zappo's founder Tony Hsieh and Aretha Franklin. They all died without a clear estate plan.
Don't join this club. Even if you're still young, it's smart to have a simple will drawn up. And if you're wealthy, look into trusts and other financial tools.
Don't assume that the wealthy are doing everything right. Many are making plenty of blunders, and some of them won't remain rich, as a result. Focus on your own financial affairs and manage your money well.
