How To Avoid Financial Pitfalls that Make Millionaires Go Broke | ONE Advisory Partners (2024)

There are many financial “bad habits” that can leave you in debt. Sometimes they lure you in with the promise of being a "smart financial move" while others are more glaringly obvious to avoid. Unfortunately, you can’t hop into a time machine to go back and undo your past financial mistakes. However, you can take steps to avoid common pitfalls and hang on to more of your hard-earned cash. The most important bad money habits are not adhering to a budget, making emotional purchases and only having one source of income.

Not Having a Budget

Everyone should have a budget. Whether you’re Warren Buffett or a recent college grad living off of frozen dinners, you should have a budget. If you don't have a budget in place, you’re at risk of a financial disaster. A budget can help you decrease or prevent debt and even provide a road map to reach your financial goals. In order to build a successful budget, spend some time tracking your spending habits. When you understand how much money you have coming in as well as going out, you’re in a better position to cut out unnecessary spending activities.

According toEntrepreneur, not having a budget is a common way that millionaires end up broke. These soon-not-to-be millionaires don’t go over their bank statements or monthly bills to make sure that there aren’t any unauthorized transactions or that they weren’t overcharged. They also don’t compare prices for expenses they routinely make, such as their cell phone bill.

Making Impulse Buys

Far too often, people who were once wealthy, but are going broke tend to have a bad habit of making emotional purchases on a whim. For example, when they've had a bad day at work they may justify going on a costly shopping spree to lift their spirits. Most millionaires avoid emotional purchases because millionaire emotional purchases tend to be expensive, "sink the boat" type purchases, like a new sports car or spending spree in Las Vegas.

Impulse buys can happen to anyone, too. According toYahoo Finance, nearly three-quarters of Americans admitted to making unplanned purchases in the last three months. Millennials are the most common culprits of impulse buys with nearly 91 percent confessing to making a reactionary purchase in their lifetime.

Not Having Multiple Streams of Income

Even if you have a six-figure salary, never rely on one stream of income. Author Thomas C. Corley conducted a five-year study of self-made millionaires and discovered that 65 percent of the people that he studied had three streams of income, while 35 percent had four streams.

The benefits of having multiple income streams are vast. When one stream is negatively affected by the economy or other unforeseen factors, the other streams can come to the rescue and help you survive the downturn without a dramatic downgrade in lifestyle. Additionally, having multiple streams of income allows you to pay off any outstanding debt faster and place more money into your investments and retirement.