First Person: Money Mistakes of the Rich and Famous

First Person: Money Mistakes of the Rich and Famous Angie Mohr, On Thursday January 6, 2011, 2:06 pm EST

In my accounting practice, I have worked with clients of all income and status levels. I've had the privilege of watching booming businesses grow from the tiny seed of an idea and have worked with several famous personalities. While, at first, you may not think that you have anything in financial common with people who have entire teams of financial planners, tax attorneys, and investment counselors at their disposal, you might be surprised that even the rich and famous make some bone-headed financial mistakes, just like everyone else. How they (and you) deal with them determines how quickly they can be recovered from.

Having more money going out than coming in.

It really doesn't matter whether you make $5,000 a year or $5 million. If you have more going out the door than coming in, you're headed for trouble. Living within our means is a skill that is becoming lost as we raise generations of kids who think they need stuff right now. If you are spending more than you're making, you can dig yourself a deep hole of debt that will be difficult to climb out of later.

Not having a game plan.

The smartest and richest people in the world stay that way because they think about money. They think about their financial goals and they track their financial performance against those goals. Planning for upcoming large expenses gives you more flexibility to find the best prices and the highest-quality items. Money-savvy consumers always look for the best value- regardless of how much money they have.

Not naming every dollar.

There is a persistent myth that we learn from generation to generation that only poor people budget. Rich people shouldn't have to be concerned about where their money goes because they have so much of it. In reality, the smart rich have a name for every dollar that comes in the door. They know if that dollar is going to be invested and where or if it is assigned for a planned purchase. No matter how much you have coming in, not knowing where it needs to go often ends in it disappearing without a trace.

Lack of tiered savings funds.

Not all savings goals are the same. Having a set of tiered funds allows you to access cash when you need it and also get the best investment rate. The bottom tier of your savings should be an emergency fund. This is for unforeseen emergencies such as burst water pipes or unexpected unemployment. This cash needs to be readily available and liquid and will often not make much of an investment return. The tiers above are for more planned events, like college, weddings, and retirement. The longer savings funds can be locked away, the better investment return you will make. Those who try to skip tiers (like the emergency fund) find their financial lives balanced precariously and may not be able to withstand any financial storm.
Ignoring changes to the economic climate.

It's not enough to set up your financial game plan and never revisit it. Changes in the economy, such as recession or inflation, can impact and erode your financial goals. Review your plan regularly and adjust it as you go.

Quoted: http://finance.yahoo.com/news/First-Person-Money-Mistakes-ac-3438840753.html?x=0