When you're looking from the outside, it's easy to have misconceptions about how people get rich. Even if you surround yourself with wealthy people, you may believe certain myths about the methods they used to get to where they are. After all, unless you actively discuss the topic with them, money is likely to remain a mystery to them.
Read: 6 steps to becoming a millionaire by age 30
Learn: What to do if you owe taxes to the IRS
It's time to clear up some misconceptions about the methods the wealthy use to acquire their wealth — and about the wealthy in general. Here are eight of the biggest.
They always know how to time the market.
It's no secret that rich people invest, but a common misconception is that rich people have some secret ability to time the stock market accurately. The truth is, trying to time the market is a mistake that many rich people actually make.
“Trying to time the market is fool's gold,” says Robert R. Johnson, PhD, CFA, CAIA, a finance professor at Creighton University's Heider School of Management. “None other than Vanguard founder Jack Bogle is quoted as saying about market timing, 'In nearly 50 years in this industry, I don't know anyone who has done it successfully and consistently. I don't even know anyone who knows anyone who has done it successfully and consistently.'”
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They are greedy
A common misconception about rich people, and money in general, is that it's all down to greed, but that couldn't be further from the truth.
“One of the biggest misconceptions people have about rich people is [is] “They're extremely greedy,” said Sebastian Jania, owner of Manitoba Property Buyers. “The rich are actually the biggest economic contributors on the planet.”
Many wealthy people are philanthropists, donating to causes they believe in and supporting underfunded organizations, and while these donations can sometimes be tax-deductible, greed has less to do with them than people might think.
They spend a lot of money
When you see rich people in the media, you might assume they all live like A-list celebrities, with luxury cars, houses, etc. While this may be true for some, it's not true for everyone.
“One myth is that rich people can buy anything they want,” says Scott Lieberman, founder of Touchdown Money. “Sure, their annual budgets may be several orders of magnitude higher, but they still need to be careful with their spending. The lesson here is that you should always be aware of your limitations, whatever they may be.”
“Many billionaires are more frugal than you might think. For example, Warren Buffett, one of the richest people in the world, still lives in the house he bought in 1958 for $31,500,” adds James Allen, CPA, CFP, CFEI, founder of Billpin.com.
They like to show off their wealth.
Based on the images of the wealthy we see on television, you might think that extremely wealthy people would be inclined to show it off. After all, why wouldn't they? In reality, many wealthy people don't live as extravagant lives as they're portrayed online.
“Yes, there are rich people who flaunt their possessions — typically those who are identified as 'I' types on Disc profiles — but most rich people actually live quite modest lives, given their status,” Jania says.
They are experts in money management
Contrary to popular belief, wealthy people don't automatically know what to do with their wealth, at least not completely. They often have a team of financial experts who help them manage their money and make smart decisions with it.
“It's a common misconception that all wealthy people are money managers,” Allen says. “Yes, many people make their fortunes through business acumen, but that doesn't necessarily mean they know how to manage their money. Even successful entrepreneurs like Mark Zuckerberg rely on financial advisors to help them manage their money.”
I have never had any debts or financial problems
Many wealthy people have struggled financially at one time or another because they don't always know how to handle money. Although it may not seem like it on the surface, this is true even for some of the wealthiest people in society.
“There's a belief that wealthy people have never gone bankrupt,” Allen says, “but many successful people, like Henry Ford and Walt Disney, faced bankruptcy and bounced back to create brands that we still see in our daily lives.”
Similarly, there's a common myth that rich people don't have debt — after all, the term “high net worth” is not synonymous with “debt” — but this isn't always the case.
“There's a common belief that wealthy people don't have debt,” Allen added, “but even people with great wealth can have large amounts of debt, as seen with boxer Mike Tyson, who at one point owed the IRS $18 million.”
They take advantage of the poor
Another common misconception about the idea that rich people are greedy is that they are willing to take advantage of others. While this may be true for some, it is not true for the majority.
“The reason people believe this is because rich people make more money than people who don't. People sometimes believe they should make as much money as rich people, but they don't,” Jania says. “Rich people usually have had to overcome many obstacles to get to where they are.”
Most of them inherited their fortunes
“Another misconception is that all rich people are rich,” Allen says. “Some people inherited their fortunes, but many of the most successful people in the world started out poor. For example, Starbucks CEO Howard Schultz grew up in a housing development in Brooklyn.”
While some people may be wealthy thanks to inherited wealth or large trust funds, this is not necessarily the case. Without adequate money management skills and the drive to excel, beneficiaries of wealth tend to lose it before they can truly put it to good use.
“And while some people think that rich people inherit their wealth, that's not usually the case,” Lieberman adds. “A recent Bank of America study found that only 28 percent of people with assets of $3 million or more inherited the majority of their fortunes. This means that most rich people make their wealth the old-fashioned way: by building a successful business.”
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This article originally appeared on GOBankingRates.com: 8 Myths About Getting Rich (or Getting Rich) That You Shouldn't Believe
