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“Everyone is after your money. Everyone.” — Anon.
Keeping your money is just as much as an art form and challenge as getting it in the first place. You thought it was difficult making a million? Try hanging on to it!
This is probably the first “classic error” made by those who want to get rich: They think that once they’ve pulled in a big score, they are done.
If you don’t know how to manage and hold on to your wealth, it will all run through your fingers like water and be gone. This is a well known fact that continues to take the majority of novices by surprise.
Here is a list and tutorial on the most common ways people lose their money:
1. Complacency / Carelessness
Complacency is one of the greatest of all enemies on the path of wealth building. No-one wants to work harder than they have to, and everyone wants to be comfortable; and so it’s obvious that when people think they are doing well, they will relax. However – think of it this way: If it took focus to increase wealth, then a lack of focus will lead to a decrease. Complacency leads to carelessness, carelessness to mistakes, mistakes to losses.
2. Misallocation Of Tax Funds
Tax is of course “unavoidable” – however you should take care not to pay more than you are legally required to, and a good tax advisor will help you do this. But one of the great challenges that arises for many entrepreneurs is setting aside the tax money and leaving it alone until the time comes to pay it, which might be over a year after it came in! There are always things that need funds, but telling yourself you will use the money you set aside now and cover it later is a recipe for disaster. Plenty of examples of people who were buried by huge tax bills; mostly through misallocation of funds or miscalculation.
3. Theft And Scams
It’s readily apparent that theft and scams are commonplace. Despite this, many give no attention to security.
This may sound harsh – but the reality of acquiring wealth is that certain people will desperately want to get their hands on your money. I don’t think you should dwell in fear; but the wealthy have security guards and methods of guarding their wealth because such methods are necessary.
Another good tactic for safety is to be invaluable. If people have great need of you, they will protect you. If they perceive much that might be gained from being rid of you, and only little to be gained from having you around, you are in danger. With great wealth comes a certain amount of danger – and so you will want to do everything you can to avoid situations where people care more about your money than about you…
It’s important not to be an easy target. Someone with general bad intent usually goes for the easiest target – and if you are perceived to be a difficult opponent, they will usually move on and seek weaker prey. This is why a big barking dog does so much for home security. It will not change the conscience of a villain, but it changes the stakes – and this is often sufficient.
A very useful strategy to apply first is what some might call the “Aikido Way” or something like that: The best form of defence is not to get attacked.
Blatantly advertising your wealth, especially in the wrong places, attracts the wrong kind of people. So rule number one is simple: Don’t let on. If people do not know of something’s existence, how can they desire and plan to steal it?
Flexing (displaying your wealth online) is a modern phenomenon that can have terrible consequences and those doing it have found themselves targeted by criminals who figure out where they are and hold them up!
One of the most foolish mistakes people make when they get money is that they advertise that they have money. They can’t resist it and feel that they need to impress, to be accepted, to be seen as important…. so they go to the casino, buy status toys, boast and show off their money, flash the cash.
Even if you think you are not advertising your wealth heavily, be careful of people entering your sphere. Some scam artists are very good at sniffing out people with money. They are pros, and may suddenly befriend you, offering you favors, temptations and lucrative opportunities of every imaginable kind. Really, such characters are not offering you anything. They are only in it for themselves and so do your due diligence and if you get that weird feeling in your belly, listen to that, rather than being seduced by the oh-so-pretty words and promises.
These are the minority; the majority are simply attracted instinctively towards wealth in the hope of getting some for themselves. They could be said to be more like hungry baby birds than sharks!
If you are not experienced in noticing the difference in how people treat you when you have money, consider this experiment: Go out on two separate evenings – one looking rich and another looking poor. On the poor occasion, buy some crappy clothes from a thrift store. Don’t shave, or style your hair. Wear some old shoes which look all beat up.
On another occasion – dress more expensive. Wear designer shoes, a nice watch; all sorts of things that suggest wealth. Stand tall. Make like you are important and that the world is your oyster.
Now notice the difference in how people treat you. This experiment may be extremely valuable. You are the same person! But many people will treat you differently. Why? Not because most people are scam artists, but simply because virtually all people want to expand, to grow and to increase their prosperity. Therefore they want to align themselves with people who are important and influential, and to steer clear of those who they imagine would be a burden.
Now of course, there are occasions where you may wish to display status: Meeting a new girlfriend’s parents, going to a job interview, meeting an important person. However, learning to conceal your wealth when appropriate is an extremely valuable art, and it is one that very many people have not mastered.
Another strategy for concealing your wealth, apart from your daily appearance, is privacy. One of the true secrets of the wealthy is that they keep their financial affairs behind tightly closed doors whenever possible, and only let certain people in. They may even hire PR firms to manage their public image.
It suddenly makes me wonder whether some of the “lottery winners who lost it all” only said that they lost it all, in order to conceal their remaining wealth from the sharks.
One of the commonest causes of financial disaster is simple miscalculation.
The most common miscalculations are:
a) Underestimating how much an enterprise will cost.
b) How long it will take (this is covered in the Time Management section, below.)
c) Overoptimization of cash-flow
d) “No calculation” – simply not making a calculation at all
Enterprises almost always end up costing more than the initial budget estimation. An unforeseen difficulty can push up labour costs, and additional supplies may be needed. An aspect of the enterprise may fail unexpectedly, requiring redesign or rebuilding.
All kinds of unexpected things can happen. Even simple things like unexpected weather can cause chains of events which lead to small errors… which lead to greater errors.
It is not possible to account for everything that might happen. However, a simple way to compensate for miscalculation is to allow some leeway. There will almost certainly be additional expenses, so add a percentage to the budget to allow for the unexpected. An old standard is 10% but yours may vary.
An even greater strategy is to keep accurate records of the performance of other past enterprises. By comparing the projected cost with the actual amount that was eventually spent, you can get a more accurate idea of how much you might need to add in order to compensate for the unexpected.
Most people do not do this. They estimate roughly how much something will cost, and then hurl themselves into the project. If additional expenses arise, they might be thrown into disaster, but very often, they do not learn from this. They might consider it “too much work” to observe and measure the difference between predicted and actual performance, and to create formulae for the next time round. They may be too disorganized, and too “busy” to have time to get organized.
They have not realized yet just how much trouble and loss can be avoided by making excellent calculations, and how much power there is in precision.
In very many cases throughout history, inaccurate budgeting has caused total disaster. If an enterprise runs out of money, it might grind to a halt or even collapse entirely.
Budgets are always tight. And if you act as though they are not, they soon will be!
5. Bad Advice / No Advice
Typically this stems from either the assumption that you know what you are doing, or listening to the wrong people. All sorts of people will volunteer free advice on any subject, but have they done successfully that which you are attempting to do? Track record is critical. And the assumption that you can manage your money without training and experience can be financial disaster.
6. Failed Investments / Failed Business Ventures
People who get some money love to throw it into new business adventures. Typically these are in the form of taking their hobby and attempting to turn it into a business. While well meaning, this most often fails. A full explanation of this would be lengthy but a good explanation can be found in the book Michael E. Gerber – “The E-Myth Revisited: Why Most Small Businesses Don’t Work and What to Do About It”.
7. Superfluous Spending, Shopping, Extravagance, Impulsiveness, Temptation
I find it fascinating that in all the books that are out there on the subject of acquiring and holding on to wealth, there is so little written about the issue of temptation. Perhaps the writers of books about making money do not want to come across as sounding overly moralistic: However, my points are not those of the moralist – or even those of the pessimist or cynic; they are those of the strategist. The subject of temptation is important – and the ability to understand the nature of temptation, and to be able to handle it, is one of the true and important secrets of wealth. For when you get money or are surrounded by money, you will encounter temptation – both your own and that of others.
Obviously, there’s the whole arena of temptation to spend your money – and the more your wealth grows, the more options there are. The more pretty things you can afford; the greater the temptation. I think enough has already been said about this in the section on self control.
The other important arena of temptation to be aware of is that when others learn of your wealth, they may be tempted to try to gain some of it for themselves. Learn to accept this as a fundamental reality of life, and simply, do everything you reasonably can to avoid putting temptation in people’s path.
It’s worth noting that temptation increases when the money increases. Some people change when the stakes change. People who have been entirely trustworthy with smaller amounts, may lose the ability to resist temptation when the amount increases.
Let’s say your friend is going to the corner shop. You ask them to get you an ice cream and give them a ten dollar bill. Chances are pretty good that you will get your ice cream and your change.
Let’s up the stakes. It’s a silly example – but let’s say you give your friend fifty thousand in cash and ask them to look after it while you are away for a month.
Now, all kinds of things come into play. If your friend happens to be broke, out of a job and has a pretty girlfriend in another country, you can bet that the thought of getting on a plane and disappearing will at least cross their mind! When people see large amounts of money, they see all the increased possibilities that could be within reach. And so temptation will arise.
Beware, if your friend secretly harbors some resentment against you, it will surface. Perhaps they are jealous that you are rich and they are poor. Why should you be swanning around in the lap of luxury, while they struggle to make ends meet? (There may in fact be very good reasons why, but temptation can cloud the lens.) They might believe that they are in reality just as important a person as you are. Why shouldn’t they have a chance too? You might see the justification starting to creep in…. desperation and innate survival instinct will start to surface – and will fabricate ways to justify their actions.
Conscience also will kick in. The person’s sense of “right and wrong”. Furthermore, it may be in their interests to prove themselves trustworthy to you, as this kind of trust may lead to greater opportunities in the future.
Another factor that weighs in might be that you hold a strong position in the community and that by crossing you, a person could ruin their reputation. A person will also “size you up” as an opponent – and will be less likely to mess with you if you are a “force to be reckoned with.”
A very important factor which might make you safe is if the friend has a lot to lose, and nothing much to gain. If they are already wealthy, and have everything they need right there, or if you are providing them with great value in some other way, they will be less likely to run away.
Another thing; knowing that you now have money to spare; they may cook up a loan scheme – and ask you to borrow money. Some of these schemes will no doubt be valid – but often, money is borrowed without full appraisal of the difficulties that will be involved in its repayment. Sometimes, loan schemes are valid. But sometimes, if a person is able to make money, they would be doing so already – and a loan is a form of “reality avoidance”.
Maybe recklessness will surface – and they will tell themselves that they will “borrow” some of the money and have it all put back together by the time you return. Depending on how clever or how stupid they are, and also how experienced they are with handling those sorts of sums (which have their own set of rules), they may be able to do this, or they may well mess it up and lose it all. Regardless, it is a risk you would be better not taking.
Whenever the stakes go up, the game changes. It’s said that “everyone has their price” – and this statement, while cynical, contains a certain truth. Yes, the friend at fifty thousand is very often not the same as the friend at a million.
So let’s go on with our unlikely example – and change the stakes again. Say you go away for a week and leave your not-so-wealthy friend house-sitting. They have the place to themselves and there is no-one around. However, you accidentally leave the safe open, and there’s a million in cash, gold and jewelry sitting there, right under their nose…
Now, the stakes are at what I call “lifetime”: A cool million, in the eyes of most people, will set them up for life. (It actually probably won’t, in almost all cases – as we have already seen with the lottery winners.)
At this point, the friend you could trust with fifty grand, might find themselves in a tailspin. The boss they hate. They could just walk with your money and never have to see him again. The life of their dreams – versus your friendship. They could escape from all their problems (or so they think) – and all they have to do is disappear. It’s easy; they could just walk out and be long gone by the time you return.
Their mind will flash all kinds of things:
Greed, pleasure, temptation: They could get all those things they want.
Fear : The police might come after them. You might come after them.
False justification: You stupid fool, you left the safe open, you deserve to get burned. Who wouldn’t take your money?
The friend might not take the money; they may be a true friend, and there’s also an awful lot to lose. But you put their mind under a hell of a lot of pressure by putting that money there. It depends how desperate they are, whether they are prone to inner weakness, and how much they stand to gain versus how much they stand to lose. Remember, desperation makes people do crazy stuff. There’s a whole lot of “friends” who would simply be overpowered by such temptation.
If it seems strange to be considering these things, bear in mind that when there is a lot of money floating around, all kinds of strange things happen. Truly. Our example is unlikely, but worthy of consideration because if you become rich, you will need to be able to make very astute judgements about who you can trust.
Trust is a fine thing – but it’s a wise strategy not to put yourself in a position where you are forced to trust people with more than is safe. Many people have a high code of honour – but others, while having the appearance of honour, have never actually had an opportunity to run off with a large sum. Don’t be the first to put them in that situation and find out the hard way.
8. Runaway Expenses
There’s an old saying in business “overhead walks on two legs” – and it does. You think it will stay where you thought it was? Think again! It has picked up and moved all by itself to somewhere completely different.
9. Lawsuits And Legal Expenses
10. Lack Of Due Diligence / Getting In With The Wrong Crowd
Although we mostly don’t want to look at the “dark side” of things, it is sometimes valuable to do so. It is said that in a Casino, the House needs to know how to cheat: Not so that they can do so, but so that they can prevent themselves from being cheated. And so it is in business, and with being rich: Most will not discuss this – but it’s important to be aware of how the dark side operates, so one can stay safe.
I don’t recommend living in fear, but it is prudent to be streetwise and aware of what’s going on. From the tax collector, the beggar, friends and family… all the way through to the businesses trying to convince you that you need to buy their stuff – there are an enormous number of people who want a slice of your wealth. You might as well assume that everybody does
Not everyone plays nicely. Most are simply “hungry birds” – however unless you are smart, these too may take all you have with little remorse. They may not really even be conscious of what they are doing. So you have to know the game – not only in so far as getting money in the first place is concerned, but in protecting it once you have it.
Due diligence – also known as knowing who you are dealing with – means to discover what you can about the person (or organization)’s track record.
The length of time that you have known someone for will also be a factor in how well you are able to understand their M.O.
In addition to a person’s past, the next step is to learn about their future: Learn what you can about their dreams and aspirations. If you know what someone’s ambitions are (and what they will be prepared to do in order to achieve them), you are more clearly able to predict what they may do.
However, it’s not always possible to know everything about someone before dealing with them. And very often, you can’t learn this stuff simply by asking people: Because society maintains an elegant facade in order to conceal aspects of its true nature.
We need to make the best assessment we can – and a good way to do this is to learn what you can about human nature in general. Human nature tends to follow patterns. Once the patterns are understood, the ways in which we are hard wired to behave, we often find that people become more easy to predict in specific circumstances.
An interesting, simple demonstration of this can be seen when interviewing someone for a job. If you ask them “Why do you want this position?”, they may tell you that they believe in the company, that they want to be a leader of the community, that they want to serve; all kinds of clap trap that they think you want to hear.
The truth is, they almost certainly only want the job only because of the money!
The reality is that much of people’s behaviour is intricately dictated by financial necessity – and the complex circle of relationships that financial stability typically depends on.
In many cases, the successful candidate will “play the game” and act honourably once given the job because they have too much to lose to do otherwise. However, if you want to see a different person, put them in different circumstances. If your “trustworthy employee” was given ten million dollars, do you think they would give you the time of day? They would likely have no further need of you. Do you think they would continue to “serve the company”? They would leave so fast you wouldn’t see them for dust!
Not so many people actually want to serve, unless it is benefiting them in some other way – perhaps protecting them from a worse fate, or perhaps for some other reason such as that they will learn the business and be able to network and make new contacts before striking out on their own. The “desire to serve” usually hinges on some other, deeper, typically more concealed desire or fear. Perhaps they wish to become indispensable rather than disposable… so that power is balanced and you have need of them, too. We can see that even in service, there is the possibility of gaining subtle control.
What motivates people? Similar things, in most cases. The strongest desires are usually tied in to survival and replication; we’re genetically hardwired to seek the best opportunities for this. An employer can get a person to donate their precious time, cut their hair, wear a suit, and appear at a certain hour, simply by holding the master key – money – with which the employee is convinced they might gain their best opportunities for staying safe and passing on their genes. It’s even been said that you can pacify a nation by giving them warmth, shelter, food, jobs, entertainment and a way to meet each other and breed. That might have been what ancient Chinese philosopher Lao Tzu meant when he said “The wise rule by emptying hearts and stuffing bellies.” It’s certainly what the Roman emperor Juvenal meant when he used the phrase Panem et Circenses – “Bread and Circuses.”
Rising in society gives one status – and status is extremely important for survival and replication. One might even say that society itself is a silent bargain struck between people, a subtle balance of power with rules of conduct: “Give something to the community in order to become a member, don’t hurt the other members; and the benefit you will gain from being a member of this community will outweigh that which you are able to create without us.”
It may sound cynical, but it is worthy of great consideration that it is very often survivalism, more than conscience, that drives people to be upstanding members of society. At its best, survivalism takes the form of what you might call “enlightened survivalism” – resulting in teamwork, collaborative endeavors and win-win situations. At its worst, survivalism takes the form of grasping, self interest and power-mongering.
One of the secrets of wealth is to have a deep understanding of how society operates, of how to move within it, and of the tokens with which its bargains are struck.
Those who truly embody a deep sense of community and understanding of the win-win, I have very often found to be the most trustworthy of people. They are highly motivated by their own interests; but seek to achieve them through the power of the team.
Another thing worth bearing in mind is that people’s typical actions can be changed by emotional and physical conditions. Even reliable people may act erratically, out of character, or even dangerously under certain circumstances such as extreme tiredness, stress, perceived threat or danger, drug use or other causes.
In life you will invariably need to deal with people – and the closer you can come to understanding their drives, needs and ambitions, the better the deals you will be able to make.
The best deals are win-win. Create trust by demonstrating your understanding and fidelity to this principle.
11. Failing To Recognize And Avoid Desperation
“A falling man will clutch at a straw” — Anon.
It’s worth observing that desperate circumstances can cause people to do things they might never ordinarily do. And, curiously, once they have done these things, very often they unconsciously change their beliefs in order to justify what they have done.
Desperation can make people do crazy things. There are very few people whose “standards” cannot ultimately be compromised. It all depends how desperate they become.
If you are desperate, you may know full well you are desperate. You can watch yourself making a desperate move, even though you know it’s crazy – because you see no choice! Rationality goes out of the window and survival takes over. To a person in a desperate situation, simply getting through the next moment will override any considerations of long term planning.
Many people do not ever get so desperate. However, people who are pushed right to the front lines of survival often become less concerned with right and wrong than with staying alive and protecting their immediate kin, when it boils right down to it. If you are unfortunate or unwise enough to put someone in that position, you get to find out just how much of a pacifist they really are.
Dealing with people who are desperate is something that we almost all encounter at one time or another in our lives. But if you are rich, the desperate are drawn to you like moths to a light. They cannot help themselves. They are simply seeking opportunity… and have nothing much to lose but everything to gain.
Those who manage to stay rich understand how desperation affects people, and know how to deal with it.
One good observation is that the desperate seem to hang out in certain places, and not so much in others. This pattern is surprisingly marked. Depending on your location, you can be almost sure to avoid the desperate, or to encounter them! So, one tactic is simply to avoid if possible places where the desperate are known to lurk. In addition to the whereabouts of these places usually being common knowledge, I find that it can be sensed. Where there is desperation, there is tangible fear in the air – and much trouble happens in these places.
Learn to recognize signs of desperation in those who you are dealing with.
In the world of money, most people want to rise up the food chain. The choice to play the game nicely, usually rests on the fact that this is someone’s best option. It may have little to do with them being a “nice person”. You could easily turn a nice person into a very nasty person in an instant by threatening that which they hold dear in some way. (Please don’t try this!) Some people really are nice – but don’t assume that people are giving you a hand because they are nice. They may play nice, but that isn’t always the same as being nice. People play nice because ultimately, it serves their best interests to do so. They may be under scrutiny, fear of the law, they may simply realize the value of reputation and of making a good impression – or it may be a manipulation play.