First you hear all of the Hollywood stories of the ultra-rich who have made their fortunes, but they are just stories. It’s not everyday that you hear about a middle class guy who became a billionaire; however; it does happen. Having said this, there is no question that there are easier ways to make money than actually making something yourself like starting a business or inventing something new.
The following list will give you insight to ten things millionaires don’t do and what you can do to become a millionaire; if we all take the time to learn by their example we could all be wealthy in our own right.
Asset Location Is as Important as Asset Allocation
If you’ve read anything about investing and saving for retirement, you’ve likely encountered advice about asset allocation. That means having the right mix of investments, rather than putting all of your money in just one asset. However, the rich know that asset location is just as important as asset allocation, Schulte said.
In other words, the rich don’t keep all of their assets in one type of account, such as a tax-deferred retirement savings account. Instead, they spread it around. Wealthy people also have investments in brokerage accounts to limit the impact of taxes in retirement, Schulte said.More From Your Money.
Choose the Right Retirement Savings Account
You can earn tax benefits by contributing to a 401k or similar plan because contributions come out of your paycheck before taxes — lowering your taxable income — and the money grows tax-deferred. When you withdraw that money in retirement, however, it will be taxed at your regular income tax rate, which is currently as high as 37% for the wealthiest taxpayers.
You don’t get any tax breaks by investing in stocks, bonds or mutual funds through a brokerage account. But if you hold these investments for more than a year, they’ll be taxed at the long-term capital gains rate, which ranges from 0% to 20% but tops out at 15% for most taxpayers.
The types of investments you have in your accounts can have a dramatic effect on your long-term returns, Schulte said. Typically, it’s best to keep securities such as bonds, mutual funds and dividend-paying stocks in tax-deferred retirement savings accounts. Then, keep your individual stocks in brokerage accounts.
Invest your money for growth
Investing in assets that will appreciate over time and provide you with a return on your investment such as dividend or interest payments is smart. The goal is to build your asset portfolio and make it so strong that you can live off the passive income in your retirement.
Build your business around your personal financial goals
As a business owner you have more control over the money you make versus being an employee with a set salary. If you want more money in your pockets, you can increase your revenue and your profit margins to ensure you are taking home more money. The more profits you have in your business the more you can pay yourself a dividend or bonus, depending on the legal structure of your business.
Create multiple income streams
Smart business owners create more than one income stream as it protects them from fluctuations in the market. That means if one source of revenue dries up due to market conditions, other sources of income can protect you from a loss.
Don’t check out
This is my most important tip. Hiring financial help such as accountants and financial advisors does not leave you with the right to check out of the financial activity in your business. Nobody will care about your money as much as you do, so never give your financial power away. Take the time to invest in educating yourself about money management so that you can oversee what is going and understand when an investment is not doing your portfolio justice.
The bottom line is that knowing how to get rich is something that is learned. There are no guarantees that if you start a business that you will get rich because even the best business ideas fail due to poor execution. But if you educate yourself and get help in making your business a success, you will increase your chances of success.
Year-Round Tax Planning Is Crucial
The rich don’t wait until April to start thinking about their tax returns, Kay said. They take steps throughout the year to lessen the impact of taxes. With the help of tax professionals, the wealthy also avoid making costly tax mistakes.
If you have the resources, check in regularly with a financial or tax adviser throughout the year. Stay up-to-date on the latest news that can affect your taxes, and keep records or receipts that could help you qualify for various tax deductions.
Donate To Charitable Causes
Wealthy individuals know that donating to charity doesn’t only help the world at large — it also helps their finances. If you itemize your tax return rather than take the standard deduction, you can deduct charitable contributions to qualified organizations. The more you deduct, the more you reduce your taxable income.
“Charitable giving is an excellent tool to mitigate tax consequences,” Schulte said. “The wealthy know this, and you don’t have to be wealthy to do it.”
Whether you write a check to your favorite charity or donate clothes you no longer wear to Goodwill, hang on to your receipts and claim your charitable deduction.
Or, be more strategic with your giving by setting up a donor-advised fund, Schulte said. These simple, low-cost funds are available through investment firms and let you get a tax deduction at the time you set aside money in the account. You can then make grants by following your own time schedule.
It’s Important To Hire Advisors
Wealthy people surround themselves with knowledgeable tax, legal and financial professionals. To increase your odds of accumulating wealth, don’t assume you need to be rich to hire an advisor. On the contrary, investing in a support system now can help you achieve the wealth you desire down the line.
“If you keep using money as the reason you can’t get on the right track, you will keep making the same mistakes,” Kay said. “[The wealthy] don’t try to do it all themselves.”
But Choose Your Advisor Carefully
Don’t skimp by hiring a novice advisor. Kay recommends hiring the best person you can afford so you don’t waste money on bad advice. You can locate a fee-only financial planner near you at NAPFA.org, the website of the National Association of Personal Financial Advisors.
It’s important to research advisors before hiring one. This can reduce your chances of losing money because of someone else’s inexperience, poor judgment or lack of ethics.
Salary Isn’t the Whole Story
Climbing the corporate ladder will only get you so far. At some point, you reach your earning potential and plateau. The rich know that in order to grow wealth, it’s important to make your money work hard for you — not the other way around. In fact, Robert Kiyosaki, author of the No. 1 best-selling personal finance book, “Rich Dad, Poor Dad,” built his entire money philosophy around this concept.
Generating income from passive rather than active income sources is the best way to do this. Investments that yield passive income include dividend-paying securities, rental properties, profits from a business you do not directly manage on a daily basis, and royalties on creative work or inventions.
They Stick With Big-Name Banks.
High-net-worth individuals often turn to same national banks that the rest of us use to meet our banking needs. Behemoths such as Bank of America, Chase and Wells Fargo are all popular choices for the ultra-wealthy. However, they typically interact with these institutions a bit differently, as we’ll explore in the next section.
Why are the wealthy skipping out on smaller banks? Accessibility, technology and resources, to be brief.
Accessibility is a key concern for many wealthy clients, since many are frequently traveling. A national bank has more branches in more locations than a bank that only serves a specific geographic area.
Technology is also a key factor in winning over clients. A 2020 banking survey by Chase says that 54% of consumers use digital banking tools more than they did last year because of the pandemic. And this trend is expected to continue at a greater frequency in 2021. So while credit unions and community banks are becoming more technologically savvy, big banks are still more likely to offer the latest and most innovative products and services.
Finally, a big bank with more than a trillion dollars of assets under management has access to more investment opportunities and more resources than a community bank.
They Look for the Best Private Bank Services.
Just because a wealthy person uses the same bank as you, doesn’t mean they’re banking in the same way. Someone who has $5 million to stash isn’t going to walk into a bank asking for a regular checking account. If they do, they stand to miss out on some valuable benefits associated with private banking services. Seeking out a private wealth manager or a financial advisor might make more sense when there’s a large amount of money involved.
The most notable difference between private banking and traditional banking is the highly personalized service that comes with private banking. Rather than dealing with a different teller on each visit, you would have a dedicated banker or perhaps even a team of bankers who are familiar with your account and your overall financial picture. Your banker(s) will tailor their services to fit your situation rather than the other way around.
Access to private banking, however, typically requires a balance of at least $50,000, with many banks setting the minimum at $500,000 or higher. This is why private banking services are typically reserved for the ultra-wealthy. Some of the most popular private banks offering private banking services include Switzerland’s UBS, Morgan Stanley, Merrill Lynch and Wells Fargo.
Conclusion
To make a million dollars, one should… work hard and save even harder! Or maybe the first step to making a million bucks is to become a self-made millionaire. To become a self-made millionaire, one has to learn exactly what to do with their money, which isn’t as easy as it sounds. In fact, there are several things millionaires do differently from the average person. In this article I will reveal those 10 things that many people don’t know about becoming a millionaire.