“Let me tell you about the very rich. They are different from you and me.” — “The Rich Boy,” by F. Scott Fitzgerald
It’s true: Wealthy people manage their money differently from the rest of us. I’m talking about the truly wealthy, the well-off, or the 1%. Compared to peasants like you and me, they have entirely different ways of making, spending, and saving money. It feels like they have some secret knowledge that comes courtesy of their wealthy bloodlines.
Still, without owning their riches, you can follow their best financial practices. Here are some strategies for managing your money like a millionaire while not spending like one.
1. Invest automatically:
Millionaires invest. Well-known billionaire and philanthropist Warren Buffett has popularized the “buy-and-hold” strategy that so many emulate.
Followers of this strategy believe so strongly in investing that they do it as a matter of course. They do it for the long term, holding onto their investments for years.
“If they buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now,” Buffett once told CNBC.
We asked financial adviser James M. Matthews for advice on how we peasants can impersonate Warren Buffett. “Save early and often—and never stop,” said Matthews, managing director of Blueprint, a financial planning firm in Charlotte, North Carolina.
“Many of those who are wealthy today started saving small amounts of money and kept saving throughout the ups and downs of their careers and lives.”
2. Get help: —
Millionaires get professional help. The wealthy employ “flying squadrons” of financial planners, tax consultants, and stockbrokers to perform their voodoo and maximize their wealth.
“Outsource the things you’re not good at,” Matthews said. “Many successful people got that way by delegating tasks to others for which they weren’t necessarily best suited, like handling their financial planning efforts. Delegating to a professional can help you stay on track and avoid making expensive mistakes while you tend to your busy life.”
3. Take advantage of tax laws:
Millionaires use the system to their advantage. They make sound investment decisions that factor in tax implications. They also funnel money into tax-free or tax-deferred funds like IRAs, 401(k)s, or college 529 plans.
4. Invest in real estate (no, you don’t need millions):
Millionaires own stuff. They diversify their portfolios. They invest in tangible assets like real estate that can produce income and grow in value over time.
A “tangible asset,” by the way, is just something you own that has a physical form. This covers everything from land to gold bullion to your cousin’s beat-up used Honda Accord.
Diversifying your assets is a way to hedge against risk, Matthews said, because the value of tangible goods is separate from the fluctuating value of the stock market. The key is to not put all of your eggs in one basket, according to Matthews. Owning real estate has real benefits.
5. Be familiar with credit and debt:
Millionaires know how to use credit and debt to their advantage. For instance, someone who’s accustomed to dealing with large sums of money might feel more comfortable getting a short-term personal loan to start their own business. Or, if you’re more comfortable, take out a second mortgage to buy some rental property.
6. Keep an eye out for a good deal: —
Millionaires can be surprisingly frugal. They’re not necessarily big spenders. They live below their means so they can save and invest the difference.
It’s like my father always used to tell me: “How do you think they got rich in the first place?” To conduct research on the affluent, sociology professor Rachel Sherman interviewed 50 wealthy people who either worked in finance or had inherited millions.
“The people I talked with never bragged about the price of something because it was high,” Sherman wrote in the New York Times.
“Instead, they enthusiastically recounted snagging bargains on baby strollers, buying clothes at Target, and driving old cars. They critiqued other wealthy people’s expenditures.”
7. Crack a book:
Millionaires read, and not just for pleasure. They read to gain information. And you’re doing this right now! Yaaay, you! You! You! You! You! You! (For the full effect here, imagine a crowd packed inside a sold-out arena, all of them chanting, “You! You! You! You!”)
Self-made millionaire Steve Siebold interviewed more than 1,200 of the world’s wealthiest people over three decades. He noticed they all had one thing in common: They self-educated by reading.
“Walk into a wealthy person’s home, and one of the first things you’ll see is an extensive library of books they’ve used to educate themselves on how to become more successful,” Siebold wrote in his book, “How Rich People Think.”
Courtesy: Business Insider