I’m a Finance Expert: 5 Money Mistakes My Rich and Poor Clients Have in Common
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Whether you’re rich or have fewer resources, there are just some mistakes you’re likely to have in common with the other half. But while these pitfalls might be shared by all, there’s still time to get back on track financially.
GOBankingRates spoke with Nischay Rawal, CPA and founder of NR Tax & Consulting, and John F. Pace, CPA and tax manager for Pace & Associates CPAs, to discuss the top money mistakes both their rich and poor clients share.
Next, read about the savvy money moves that both rich and poor people make.
Neglecting Proper Tax Planning
“One common mistake both my affluent and less wealthy clients make is neglecting proper tax planning,” said Rawal, “which often leads to overpaid taxes or hefty penalties.”
He offered the example of a startup founder who didn’t claim deductions they were eligible for — and ended up paying over $20,000 unnecessarily. Conversely, he said a middle-income family repeatedly miscalculated their tax bracket, leading to surprise liabilities.
“From these experiences, it’s essential to engage a skilled advisor early to ensure accurate year-round tax planning,” he said.
Mixing Personal and Business Finances
Another prevalent mistake, according to Rawal, is mixing personal and business finances: a pitfall seen across the financial spectrum.
“A high-net-worth business owner faced audits due to combined expenses, while a small business owner missed out on personal deductions and faced complications during tax filing,” he said.
Maintaining clear boundaries between personal and business finances can streamline financial management and prevent conflicts with the IRS.
Underestimating the Importance of Estate Planning
One of the most prevalent mistakes Pace sees across the spectrum of wealth is underestimating the importance of estate planning.
“Even affluent families with complex financial portfolios often neglect to communicate intentions clearly, leading to disputes among heirs,” he explained. “For example, during my tenure as a family office executive for a Forbes 400 family, I observed multiple conflicts arise simply because trustees didn’t prepare or share annual accountings, resulting in unnecessary legal battles.”
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Failing To Diversify
Ignoring the need for diversification is another common error, said Pace.
“Many individuals, regardless of their wealth, fail to adequately spread their investments across different asset classes,” he explained. “I’ve seen high-net-worth clients heavily concentrated in commercial real estate, only to face significant financial strain during downturns in that sector.”
He said diversification serves as a protective measure, ensuring stability and reducing risk.
Lacking Proper Retirement Planning
Lastly, experts say both rich and poor alike often lack proper retirement planning, missing out on tax-advantaged growth opportunities.
“In my experience overseeing trusts and private foundations, even those with significant assets sometimes do not fully use employer-sponsored retirement plans,” said Pace.
Aligning both short-term and long-term financial goals is crucial and should never be overlooked; the compounding effects of incremental contributions can significantly bolster future security.
