Don't make these millionaire money mistakes

Even millionaires have financial regrets.

57% of millionaires say their greatest financial regret is not putting together a financial plan when they were young, according to a survey by deVere Group.

Looking at that statistic, my hunch is that a fair number of millionaires didn’t bother to draw up a financial plan when they were younger, and poorer. Then when they had more cash, they were prepared to shell out and pay an adviser to draw up a plan for them.

The really interesting point is that they can now see the point of a financial plan and wish they had created one when they were younger.

So that suggests that you should draw up a financial plan too, regardless of how rich or poor you may be, or how old. A plan will set out your long-term goals for your life, how you can pay for those goals and also include a budget on how much you should spend each month.

Your plan needs to be regularly reviewed – preferably once a year – as your circumstances may change. Perhaps you’ll benefit from an inheritance or you might unfortunately lose your job.

It’s well worth visiting an adviser to help you draw up your plan, and to review it. Yes, the adviser will almost certainly charge you a fee, but good advice will probably save you money in the end.  

How to draw up a plan

If you’re determined to do this on your own, the best place to start is to consider what your goals are for the rest of your life. Not just financial goals. Your goals could include travelling round the world at some point, or paying the deposit on your child’s first property purchase.

Next, you need to figure out how much these goals might cost and whether they’re realistic for you. It’s worth getting out all of your financial documents at this stage because you need to see how much money you have right now.

Then you can set out a plan for achieving your goals and how long that will take. A budget is an essential part of that plan and it’s crucial that you stick to that budget. You can read more about budgeting in How to set a budget and stick to it, but I’d urge you to consider using our MoneyTrack tool  as part of that process.

With MoneyTrack you can set budgeting goals and then monitor your spending every day to see if you’re hitting your targets. MoneyTrack helps you do that because you can see all your credit card and bank account transactions on one page.

Other regrets

Although a lack of financial planning was the number one financial regret for millionaires, there were two other regrets that were also cited frequently:

-          18% of millionaires say they regret not regularly assessing the performance of their investments

-          13% regret accumulating unnecessary debt.

Regular assessment of investment performance is an interesting one. The conventional wisdom is that you should check your investments at least every couple of years. But I’m not sure that’s necessary for everyone.

Let’s imagine that you’re 40 years old and you’re investing to build a savings pot for your old age. Your best bet is to invest in a range of index tracker funds across the globe – your investing costs will be low, your performance should be good, and, best of all, you don’t have spend hours implementing a complex investment strategy.

Granted, there will be years when your investments don’t perform well, but over 20 years there’s a strong chance that your investments will do just fine. And if you review your investments too frequently, there’s a danger that you’ll be tempted to move your money around needlessly and incur unnecessary costs.

It’s different if you’re in your late 50s or older. Then you need to consider whether you should sell some of your shares and move the money into less risky investments. At that stage, it does make sense to do frequent investments reviews.

Debt

As for debt, the millionaires are right to regret accumulating unnecessary debt. After all, every pound you spend on interest is a pound that you’ll never see again. You’ve earned the money and now you’re handing it straight over to a lender.

That said, sometimes debt is unavoidable. Most of us have to borrow to buy a home, and I also wonder if some of the millionaires had to borrow in the early days before they became rich.

In other words, 13% of millionaires regret some unnecessary borrowing in the past, but I suspect that just as many millionaires are glad they borrowed to help build their fortune.

Deciding whether it makes sense to borrow is a difficult decision. It can be worth doing in some circumstances but it never makes sense to borrow to pay for frivolities such as a fancy holiday or a posh top-of-the-range car.

And if you have a financial plan, you’ll be much less likely to borrow when you don’t need to.

Check out our MoneyTrack budgeting tool 

More from Lovemoney:

One in three people have less than a month's income in savings

Keep an eye on the big picture

Do these 20 things and you’ll always be poor

Why you must draw up a financial plan