Yahoo Finance The 8 Biggest Myths About Rich People
When we see rich people, either in our daily lives or in the media, we have assumptions about them. The monikers of wealth -- designers bags, expensive sunglasses and luxury vehicles -- usually help us identify the status of that individual and make seemingly logical assumptions about their lifestyles.
The thing is, not every wealthy person is a big spender with an immaculate financial history. In fact, being wealthy doesn't mean you necessarily have any clue how to manage your personal finances. Here are eight stereotypes about rich people and names you know who break the mold.
1. They're homeowners.
Celebrity reality shows like "Keeping Up With the Kardashians" and MTV's "Cribs" have confirmed our assumptions that rich celebrities inhabit the palace-like homes and condos of Malibu and New York City. Yes, many rich people -- celebrities or not -- own their homes, but not all of them do. In fact, several celebrities, including actresses Diane Keaton, Meg Ryan and Jane Fonda, have paid rent for their residences.
Queen Latifah rented a 4,700-square-foot loft in Atlanta from Fonda, in fact, for $10,000 a month, according to Zillow. For celebrities and businessmen who change their residences regularly for work, renting might be a better financial option. Although, at $10,000 a month we can't say Latifah's rental is low budget.
2. They're experts at money management.
Wealth, if it's not inherited, is often the product of making it in a business. Whether you've built your name up to command a certain salary, as is the case with athletes and celebrities, or built up a company, honing that entrepreneurial mindset is often key to accumulating wealth. However, just because someone knows how to acquire money doesn't mean he knows how to manage it.
Wonder how the rich continue to get richer? They can afford financial advisors who make sure their money works as hard as they do. Even entrepreneurs like Mark Zuckerberg, who started Facebook from his college dorm room, turn to financial advisors when it comes to managing the product of their success and business savvy. Divesh Makan advises both Facebook founder Mark Zuckerberg and chief operating officer Sheryl Sandberg on their financial decisions.
3. They have perfect credit.
Credit scores are used to measure the likelihood that someone will pay back what he or she borrows on time. Those who fail to do this will experience a credit score decrease, which will hike up the interest rate offered when borrowing in the future.
It's natural to assume that the wealthiest people have high credit scores that help contribute to their wealth. However, because rich people can be extravagant spenders, this is not always the case. Celebrities with debt, or who have gone bankrupt, suffer from low credit scores. Lindsay Lohan, for example, reportedly owed $600,000 in credit card debt in 2010, requiring a minimum monthly payment of $15,000. Who knows whether Lohan managed her payments or what her exact interest rate was, but it's safe to assume that her credit history reflected her spending decisions.
4. They're big spenders.
This is true for many rich people, especially celebrities, but it's not a rule. With more money comes the ability to purchase luxury goods and pay for extravagant experiences. The more money you have, the cheaper that private yacht or -- in the case of Virgin Group founder Richard Branson -- that island might seem. However, just because you're rich doesn't mean you have to act like it. Zuckerberg is famous for his trademark gray T-shirt and hoodies, and he isn't the only entrepreneur who exercises frugality.
Warren Buffett is the third-richest man in the world, boasting a net worth of $63.3 billion, according to Business Insider. With an average earnings of $37 million per day, the Oracle of Omaha is famously frugal and still resides in the home he purchased in 1958 for $31,500.
5. They're debt-free.
The belief that wealth and debt cannot co-exist is turned on its head by a wide range of celebrities. From Lohan's credit card debt, to the $18 million professional boxer Mike Tyson owed the Internal Revenue Service, those who command big paychecks and endorsement deals also often have debt to match.
Even with a fortune of $300 million, Tyson's debt reached $38 million in 2004, according to USA Today. Other celebrities who struggled with debt include actors Nicholas Cage and Burt Reynolds, photographer Annie Leibovitz and former baseball player Jose Canseco.
6. They come from money.
The silver spoon perception of wealthy people isn't entirely misguided. After all, heirs of family fortunes have a significant head start toward wealth. However, the whole concept of the American dream is centered on the self-made man who has control over his financial status, regardless of family money.
We're seeing self-made men climb to the top of the earnings charts, as places like Silicon Valley churn out wealthy tech entrepreneurs at an alarming rate. Some of the world's most successful people started off not just in the middle class, but poor. Starbucks CEO Howard Schultz was raised in a housing complex for the poor in Brooklyn, and business mogul and talk show host Oprah Winfrey was born into a poor family in Mississippi. Forbes estimates that Schultz is now worth $2.1 billion, while Winfrey sits at $82 million.
7. They've never been bankrupt.
Much like debt, bankruptcy seems to be the antithesis of wealth. However, some of the most successful people lost everything at some point. Some wealthy people who bounced back from bankruptcy include Henry Ford, Walt Disney, Milton Hershey and H.J. Heinz -- all of whom went on to create brands we still see in our everyday lives.
Another example: Hotel mogul Donald Trump has filed for corporate bankruptcy an astounding four times -- in 1991, 1992, 2004 and 2009 -- but he's worth more today than he was before filing for Chapter 11 the first time. In 1990, Forbes estimated Trump was worth $500 million; he's now valued at $4 billion.
8. They don't have a budget.
With wealth comes the ability to live carefree on an infinite budget, right? While even the likes of Bill Gates and Warren Buffett have only so many billions to spend, one could think that these megarich don't need a budget at all, especially since they're not living paycheck to paycheck. However, a wise person who has amassed wealth lives on a budget, as he understands that just as quickly as it was earned, it can all be lost.
Actress Kiera Knightley revealed to Glamour magazine this year that she's been living on a $50,000 annual budget since 2012, despite her $50 million net worth.
"My parents were actors and writers, and that gives you the mentality of, OK, I've got [money] now, but it could all go," Knightley told Glamour.
Just as you have to budget for retirement, your mortgage and car payments, groceries and other expenses, wealthy people should and do apply the same guidelines for themselves; when they don't, it's likely that their wealth will be misspent, leaving nothing for the future.
Christina Lavingia is an assistant editor and writer for GOBankingRates.com, a source for the best deposit and loan products, personal finance news and more.
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