Top Stories
Top Stories
Personal Finance

5 money mistakes that keep you from getting rich

Key Points
  • We all make errors, yet there are a few money mistakes the super-rich generally don't make.
  • One of them is they don't follow the pack — whether it's a fad investment or panicking during a market sell-off, according to author Tom Corley.
  • They also seek expert advice and look beyond the stock market for investments.

The rich — they're just like us, right?

Well, not exactly.

If you analyze the habits of wealthy people, some trends begin to emerge. First, they don't follow the pack — whether it's a fad investment or panicking during a market sell-off, according to Tom Corley, an author who has studied self-made millionaires.

Secondly, they work at becoming successful every day. And it doesn't have to take hours of their time.

VIDEO3:1303:13
Where the ultra-rich invest during a volatile market

Corley, whose books include "Rich Habits," likened the wealthy to trees, which tend to grow slowly.

"Every day, they do certain things that help them to change into the individuals they need to become in order for success to visit them," he told CNBC. "This change is not noticeable from day to day, month to month or even year to year. But after many years, the change is obvious."

Daily habits could include increasing your knowledge by going to school, attending seminars and picking the brains of mentors. You can also develop and perfect your skills by practicing them, as well as cultivating relationships with successful people.

Berkshire Hathaway Chairman and CEO Warren Buffett, also known as America's billionaire next door, has said the best thing people can do is develop their own talents. "The greatest asset to own is your own abilities," he has told CNBC.

And, while we all make mistakes — there are a few that the super-rich generally don't make.

Errors cost money, and while wealthy people may have a lot of that — they certainly don't want to lose it.

Here are five money mistakes that may be keeping you from getting rich.

1. Doing it yourself
Hero Images | Hero Images | Getty Images

When the stock market drops — as we saw in December, when major indexes all dropped at least 8.7 percent — you have to know what you are doing or you can get burned. If you don't have time to spend a few hours a day tracking the market, the cost of a good financial advisor is well worth the investment.

Ivory Johnson, founder of Delancy Wealth Management in Washington, said most wealthy people don't try to manage their money themselves — they hire financial planners, CPAs and attorneys to protect their assets and reduce their risks.

And when are risks the highest? When markets start taking investors on a roller-coaster ride.

"When investors are stressed, the odds of making a bad decision increase," he said. "Wealthy people mitigate that stress by having good advisors."

While some may balk at paying a fee, the returns on that money will, most years, be well above that amount. During the bad years, your advisor can help you mitigate your losses to preserve your wealth for the long haul.

2. Not diversifying
A beachfront residence is seen in East Hampton, New York.
Jeffrey Basinger | Reuters

The average investor may have stocks and bonds in their 401(k) savings or investment portfolio. The rich branch out and diversify.

Remember Enron? Many employees of the energy giant bought into the company's sales pitch so much that they put all of their retirement savings in its stock. And when the firm went belly up — so did all of their savings.

In addition to stocks and bonds, the ultra-wealthy invest in things such as real estate, limited partnerships and private markets, Corley said. That way, if stocks, for example, are having a really bad year, you may make up the difference with a good year in real estate or vice versa.

Another appealing factor that draws a lot of wealthy investors to real estate: It may provide an extra income stream. In addition to the potential appreciation of that property, if you rent it out — that's an immediate source of income, which can give you a nice cushion should you lose your primary job.

And of course, you won't be as worried in a year when stocks are down.

"Most wealthy families have real estate holdings because it offers recurring revenue, tax benefits and creates equity," Johnson said. "It also puts less pressure on their stock portfolios to perform."

3. Fad investing
A woman passes in front of a Bitcoin exchange shop.
Artur Widak | NurPhoto | Getty Images

The ultra-wealthy don't get caught up in the latest fads, pouncing on the next "new" thing.

Take bitcoin, for example. The cryptocurrency took off in 2017, making instant millionaires out of some early investors. That spurred a lot of people to jump in and try their hand at making a fortune.

That could be fine — if you're a professional trader or just want to play around with a little gambling money. Yet fads like bitcoin are risky business: The cryptocurrency has since fallen a stomach-churning 70 percent in the past year.

Buffett, who is famous for his philosophy of investing in what he knows and then holding on to it for the long haul, told CNBC last year that "in terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending."

The legendary investor, who is worth $80 billion, according to Forbes, believes you have to know what you know — and stay the course.

"What counts is having a philosophy ... that you stick with, that you understand why you're in it, and then you forget about doing things that you don't know how to do," Buffett said at the Berkshire Hathaway annual meeting in 2018.

Those who are caught up in the "follow the herd" mentality may do so because they are focusing on "one thing they think can make them rich overnight," said Ivory. "It doesn't work."

4. Lack of a long-term plan
Visitors look at the painting "Le Printemps", 1881, by French painter Edouard Manet during its presentation at Christie's Auction House in Paris October 22, 2014.
Charles Platiau | Reuters

Wealthy investors are patient and don't necessarily think about short-term returns.

"Most people don't sit down and actually plan out how they are going to invest their savings over the next 20 years," Corey said. "The wealthy do. They just don't wing it."

And it's not just about making money for themselves, it's about creating generational wealth that can benefit their grandchildren and beyond.

"Instead of buying a painting for the living room, they'll spend extra money for art that can appreciate," Ivory added. "They join clubs and organizations so the relationships they make will offset the fees, even if they don't realize it for several years.

"This demands foresight, estate planning and patience."

5. Panicking
Brendan McDermid | Reuters

The volatile stock market may make you want to run for cover. Because the rich are in it for the long term, they don't tend to panic.

They also have a lot of liquidity and financial resources they can lean on when the stock market, real estate market or other investments go south, so they don't "need" to sell, Corley said.

For Johnson, it's also about the world giving us what we give out.

"Anxious investors receive anxiety, and confrontational people are always engaged in some form of conflict," he said. Meanwhile, optimistic people experience more positive outcomes.

"Over a lifetime, this becomes a habit and you'll often find that wealthy people who are happy got that way because they were optimistic, as opposed to becoming optimistic because they got wealthy," Ivory said.

More from Personal Finance
Use these investments to ride out market volatility, but beware the risks
Here are two strategies to turn your 2019 savings goals into reality
How you manage debt will impact those retirement dreams