People acquire riches in a variety of ways. Some inherit it, while others become great business owners. And a few people do win it, generally via the National Lottery or Premium Bonds.
During the peak years of 1995 to 2007, buy-to-let property investment produced a large number of billionaires. Long-term investment in businesses is my favorite path to wealth.
Unfortunately, being comfortably well-off or even genuinely affluent has two major drawbacks. The first is creating riches in the first place; the second is keeping it!
Taking up excessive debt
Excessive borrowing is the single most destructive force for businesses and entrepreneurs. Of course, it's easy to make money during the boom years of cheap, easily accessible credit. When times are difficult, however, large levels of borrowing may be fatal to over-leveraged people and enterprises.
Tracking the hot money
History seems to be one unending cycle of booms and busts. Even the strongest empires crumble and fall over time. Similar tendencies may be found in financial markets, but most of us only notice bubbles after they collapse.
We've witnessed some tremendous booms and collapses in the last decade, like the dotcom bubble, domestic and international property, the stock market half, doubling, and then halving again, and so on. Furthermore, the seeds of the next collapse have already been planted – potentially in bonds or gold?
Excessive risk-taking
When you're young and have nothing to lose, it's prudent to take risks in order to convert income into money over time. Indeed, as the Russian saying goes, "He who does not take risks does not drink Champagne."
Take your foot off the accelerator and cruise towards a pleasant retirement as you become older and have less time to recuperate from life's inevitable disappointments. In other words, if your money is steadily growing and you're becoming wealthy gradually, there's no need to make all-or-nothing bets.
Supporting the wrong company
Starting your own business is one of the most tried-and-true methods of accumulating personal wealth. If your company is successful and you hold the majority of its equity (shares), you will be rewarded handsomely.
However, starting and sustaining a company is far from easy. Even entrepreneurs who have a great concept and work really hard might fail. According to the Insolvency Service, 19,077 firms in England and Wales declared bankruptcy in 2009. Indeed, most small enterprises fail within four years of their inception.
So, be aware that putting your personal wealth and assets behind your business (or someone else's) is a double-edged sword. If the endeavor is successful, you will get the lion's share of the revenues.
Being a less smart miser
Lloyds TSB performed an impressive study of its affluent clients a few years ago. Lloyds discovered something rather profound: despite having a net worth of £1 million or more, the great majority of these well-heeled people searched around quite thoroughly before making all but the most insignificant purchases.
Bargaining and haggling were, in fact, a way of life for these 'wiser misers.' They were not in the mood to give up their pot to another person or organization once they had manufactured it. They wanted a good deal, therefore they refused to pay the 'ticket price' for any large purchases.
Giving in to deception
I once asked my wife what my job would have been if I hadn't ended up in finance and media. "A financial fraudster!" she said. See how the Vanderbilts family lost their riches.
In all seriousness, regardless of your money, I would highly encourage you to be cautious about whoever you trust. Even under the greatest of circumstances, giving your money to someone else may be problematic. In the worst-case situation, that "once-in-a-lifetime chance" may turn out to be a complete forgery.