When we think of the rich, we usually imagine fancy cars, sprawling mansions and effortlessly chic brunches. But wealth doesn’t always come with wisdom — especially when it comes to money habits. In fact, some of the financial behaviors the rich indulge in are downright ridiculous.
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GOBankingRates spoke with Andrew Lokenauth, money expert and owner of BeFluentInFinance, to discuss the top money habits the wealthy seriously need to rethink.
“As a wealth advisor, I’ve seen some wild spending habits from my rich clients. And let me tell you, having money doesn’t automatically mean you’re good at managing it,” he said. Here’s what else Lokenauth had to add regarding ill-advised spending by the elite class:
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Buying Multiple Luxury Cars They Never Drive
“I had this client who owned seven luxury cars worth about $2 million total,” said Lokenauth. Most sat collecting dust in his garage, and depreciation and maintenance costs were eating up roughly $150,000 annually. “Such a waste,” he added.
Instead of collecting cars, Lokenauth got his client to invest in a diverse portfolio that’s now generating over 12% returns.
The better move: If you love cars, lease one luxury vehicle. Put the rest of that money into appreciating assets like real estate or index funds.
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Keeping Too Much Cash in Basic Savings
One of Lokenauth’s wealthy clients had $5 million sitting in a regular savings account earning 0.01% interest. “That’s basically losing money to inflation,” he noted
After some convincing, he was able to get his client to move most of it into a mix of high-yield savings, bonds and dividend stocks. Now, that money’s working harder and earning roughly 5% to 7%.
According to CNBC, while the average return on a traditional savings account is just 0.43%, some HYSAs offer rates over 4%. The better move, according to Lokenauth, is to keep six months of expenses in high-yield savings and invest the rest across different assets based on your goals and risk tolerance.
“I’ve seen this strategy boost wealthy clients’ returns by over $100,000 annually,” he said.
Impulse Buying Real Estate
There’s a trend among Lokenauth’s rich clients of buying properties without proper research just because they can.
“I had a client drop $3 million on a vacation home he visited once,” he detailed. “Between taxes, maintenance and missed investment opportunities, that decision cost him about $500,000.”
Lokenauth suggested researching thoroughly before any property purchase. Calculate all costs (taxes, maintenance, insurance), and also consider renting first.
Successful real estate investor clients spend three to six months analyzing each potential purchase, according to Lokenauth.
Overspending on Status Symbols
Lokenauth has seen rich clients spending crazy amounts on designer items they rarely use.
“One spent $50,000 monthly on clothes with tags still on them,” he said. “That money could’ve been generating substantial passive income instead.”
Lokenauth advises wealthy clients to follow the 5% rule — limit luxury purchases to 5% of your income. He’s helped clients redirect excess spending into investments, creating over $20,000 monthly in passive income.
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This article originally appeared on GOBankingRates.com: I’m a Financial Expert: 4 Ridiculous Money Habits the Rich Need To Quit
