As counter intuitive as it may sound, the more money we make, the harder it tends to be to keep it all in balance. Thinking we’re all set once we accumulate our first million, many of us make decisions without doing the work of setting – and following – a sound long term financial plan.

Oftentimes we see that when someone receives a large windfall, or a significant increase of income, the new money is already being spent mentally before even receiving or accounting for it. That’s one reason lottery winners are more likely than the average American to file bankruptcy within 3-to-5 years of winning.

Over the years we’ve seen it all and we can tell you first hand, it’s not how much you make, but how you save and how you spend it that is most important. The common theme among those that fail to achieve financial success is not having a financial plan in the first place.

These are the five biggest pitfalls to avoid after you make your first million:

Don't spend money on an expensive car before saving
1. Keeping up with the Jones’s

It’s not a competition. Treating it like one will not only eat away at your wealth, but also your self-esteem. That said, it’s awfully tempting to compare yourself to someone whose financial situation you believe to be similar to your own. If they can afford the expensive jewelry, cars, and vacations, shouldn’t you be able to afford the same?

Absolutely not.

It is impossible to know what anyone else’s financial situation really looks like. Maybe they can afford to spend more because of an inheritance or lucrative investment you don’t know about. Or maybe they can’t afford to spend more at all; they’re drowning in debt, trying to keep up with the Jones’s themselves. Don’t do it!

You really need to ask yourself what’s important to you. Financial growth can be high on that list, but making money is just a means to an end, dig deep and focus on your long term goals. This means every financial decision you make should be aligned with your goals and based on what you know about your financial situation, not what you assume about anyone else’s.

Think about it. Does the way you spend your money align with your values and life goals?

Accomplish your financial goals take the first step
2. Not setting the next goal

Making your first million feels good, especially if you have something to show for it – savings, investments, businesses and experiences that have enriched your life. But you cannot afford to rest on your laurels. If you don’t have plans in place to make your next million, then you may be closer to sitting idly by watching your first million dwindle away than you think.

Over time as you accumulate more wealth, it’s your responsibility to be a steward of your financial resources and understand what that means for your legacy. If you don’t think ahead and plan goals for your future it’s hard to track progress and measure your successes along the way.

Start by taking inventory of what’s important to you. What are your values? What are your financial goals? Where do you see yourself in two years, ten years and twenty years from now? Think about these questions to help you develop and prioritize your goals.

When you’re ready, make a list and begin to prioritize your different near-term and long-term goals. Place them in order of priority with specific details that include:

  • Action steps
  • Target dates for achievement
  • Reminders of why these goals are important to you

Include personal development goals, business goals, lifestyle goals, family goals. Achieve one, move onto the next, and be sure to review this list and make updates over time as your priorities change.

Growth and protect your wealth
3. Not protecting your wealth

Don’t get greedy. The more money you accumulate, the more comfortable you might begin to feel about taking bigger risks for higher potential returns. Of course, you want to keep growing your wealth, but not at the risk of losing it all. You need to be smart about how you both Grow and Protect your wealth along the way.

The most obvious type of protection is insurance, don’t neglect it. Too many people either put it off, never do it, or they are under-insured. This leaves themselves and their families in a tough spot when the worst happens. Determine the types of risks and people you want to protect, whether that be from an accident, loss of income, your health. Some common types of insurance include life, health, disability, homeowners, automobile, and professional liability insurance.

Look closely – and immediately – at what your financial situation calls for. Learn all that you can about the types of insurance that make sense for your personal situation and the proper amount of coverage so you can make an informed decision.

Another fundamental way to protect your wealth is directly related to your cash management and investment plan. It’s important to maintain the right amount of cash reserves and make sure your money is always working for you. Whether it be in stocks, bonds, or real estate, you need to understand how much risk is in your investment portfolio today. If you are not comfortable taking that much risk, reduce it immediately and adjust your expectations for performance accordingly. If you are seeking more reward, then you’ll have to accept the additional risk that comes with it.

Balancing risk and reward in your investment portfolio is key to building, and keeping, long term wealth.

Save before your spend
4. Spending before saving

Always pay yourself first. This hopefully isn’t the first time you’ve heard this, and it certainly won’t be the last. Because it’s true. Paying yourself first does not mean you can’t do and buy the things you want. You work hard for your money and should definitely enjoy spending it too. What paying yourself first means is having a strategy in place to always be saving a portion of the money you are earning.

Saving is an active process, not passive, and it can be really simple to setup. Whether you choose to automate some of this through payroll deductions into a retirement plan through your work or setup bank transfers between accounts to save funds on a regular basis. You want to consciously set aside money that you are planning to keep for the long term.

For longer term savings and investing wealth, you may be more comfortable taking some amount of risk since you have a longer time horizon till you need the funds. Whereas money you’ll need to pay basic living expenses and fund goals within a year or less, that should be low risk and held in a regular savings or checking account that you can access quickly.

Your specific financial situation will dictate how much you should set aside for at least the next six months; what matters most is that you are saving something. Because the last thing you want to do is support your lifestyle on cash flow alone – you can’t grow your wealth like that long term. Save money on regular basis, make it a habit, and invest wisely.

Diversify your investments with an investment plan
5. Not diversifying

Don’t put all your eggs in one basket. Different types of investments react differently to changing markets and economic conditions. That’s why having a diverse investment portfolio is so important for building wealth long term. If one asset class takes a hit, having investments across many asset classes reduces your risk and concentrated exposure.

There is no one right diversification formula for everyone, but you need to take your entire financial situation into account:

  • Real estate assets (primary residence, vacation home, income property)
  • Closely held business interests
  • Stocks and bonds, including mutual funds and ETFs
  • Alternative assets
  • Cash reserves (e.g., 6 months living expenses)

Look at the big picture and diversify your portfolio accordingly. Make sure the types of accounts you setup and the investments you hold are aligned with your long term goals. If you need help figuring out your investment plan, consider working with a fiduciary financial advisor that has the credentials and expertise to address your specific needs.

When it comes to amassing wealth, there are no guarantees. The best you can do is educate yourself, develop a sound financial plan, and make smart decisions that are aligned with your best interest. You’re not perfect, so mistakes will still be made. But if you can avoid the ones on this list, you’ll be in the best possible financial shape to turn your first million into more.