The affluent are a mysterious breed of people you may assume have everything figured out. And while you may think you know all there is to know about being rich — basically, having loads of money — there’s still a lot of unknowns.
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GOBankingRates spoke with David Milo, financial advisor and owner of Independent Lending, and Melanie Musson, finance expert with Insurance Providers, to discuss the things you may not understand about being wealthy. Below, they break down what they’ve found to be true of the rich.
“It is rather interesting to note that more wealth makes it harder for its holder to make financial decisions,” said Milo. “In a paradoxical way, having more options also makes an individual risk averse to making moves out of the fear of making the incorrect one.”
He said this is more so with wealth that is inherited, since the person never worked towards it and thus is afraid to lose it.
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Many think that the rich do not waste money through emotionally directed purchases, but according to Milo, glamorization of wealth also increases emotional spending.
“I have had instances where clients buy multi-million dollar houses or sports cars for social approval at some point and hate the decision when the money controlled assets become an expensive to maintain worthless piece of metal or even worse, underwater,” he said.
“It is not in any way important how much you make but more about how much of it you are able to retain,” said Milo.
He said a lot of people who earn significant income fail to see the importance of being aggressive with tax planning.
“For example, using donor advised funds or income deferral strategies saves a great deal in taxes. However, most people do not make use of them, because they forget them,” he explained. “True wealth encompasses much more than just a hoarding of material assets. Rather, it is about limiting personal emotions and obligations, and getting to grips with the tax law.”
He said that without these cornerstones, wealth can be ephemeral.
People think that when you’re wealthy, you’re happier, said Musson.
“Wealth and happiness are not directly related. You don’t become more happy just because you have more money,” she explained. “Having money can help reduce financial stress, but it won’t automatically fix your unhappiness.”
