Broker Check

Practical Planning Tip: 7 Mistakes Affluent Investors Make - Mistake # 4

May 20, 2024

Today’s mistake is Underestimating the required annual income to maintain your lifestyle: It always impresses me how quickly people can spend their money. This is true regardless of asset levels. While this may be a compliment to the marketing skills of our nation’s retailers, it is also an insight into human nature. People tend to spend the money they have, especially if they are accustomed to maintaining a certain lifestyle.

In order to maintain one’s lifestyle it’s important to properly evaluate income needs and modify plans as necessary. During one’s working years, there is always the potential of making more money to replenish one’s spending. However, it’s imperative to make sure you are not taking out debt to fund your lifestyle and are ALSO saving for the future when you will no longer be working.

Once in retirement, the ability to earn more income decreases since most retirees are living on a fixed income. It is, therefore, imperative to define one’s cash flow numbers from the onset of retirement. This cash flow analysis should serve as the cornerstone of one’s financial plan to increase the probability of achieving your financial objectives.

Even if you are an extremely high earner, this does not make you impervious from spending beyond your means and ending up in financial ruins. Spend less than you make and save for the future. Failure to heed these words can lead to many money challenges and lots of hardship down the road.


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