Do you often wonder what rich people do on a day-to-day basis? You may think it is easy to become a millionaire, but most of that money comes from careful planning. Many of the items above you would not expect that millionaires spend their money on. Key takeaway: Becoming a millionaire is an accomplishment. Anyone can gain from their success and learn how to manage their money with this type of article.
They Don’t Miss Chances to Grow Their Wealth.
Many rich investors understand that they need to make smart investments in order to hold on to their wealth and boost their net worth. A recent report shows that among individuals with a net worth of $100,000 to $25 million, only 13% of their assets are in cash or liquid investments while nearly 60% of their assets are in equities. That means that while the rich are parking some big bucks in their checking and savings accounts, they’re still investing the bulk of their wealth in the market.
In contrast, a survey found that the typical American investor keeps 65% of their assets in cash and only 18% in equities. The takeaway? When it comes to banking and investing, the rich and ultra-rich aren’t letting their assets languish in accounts that earn paltry returns. Some of this is unavoidable, of course. We all need to keep some money in cash to handle day-to-day expenses, and for the truly wealthy, 13% of their assets is plenty of cash to have on hand! For the average person, though, the money we need for regular expenses are a substantial percentage of our assets.
Take Advantage of Time — Not Timing
No one can predict what the stock market will do tomorrow. The wealthy know this and make no attempt to moonlight as day traders.
“Time is more important to investment success than timing,” said Peter Lazaroff, a certified financial planner for Plancorp, LLC. “Most of the population believes that timing the market’s moves is the key to growing rich through the stock market. The wealthy, however, understand that time and compound returns are the most important factors in growing wealth.”
Though it might seem counterintuitive, getting rich requires investors to adopt an unsexy buy-and-hold strategy, ride out market fluctuations and ignore speculation.
Put It in Writing
The difference between having an idea and putting it on paper is often what separates the uber-successful from average folks. If you equate success with wealth, it might be time to start writing down your goals, both large and small, in order to become rich.
Thomas Corley, author of “Rich Habits: The Daily Success Habits of Wealthy Individuals,” noted that 67% of the wealthy people he surveyed wrote down their goals, while 81% kept a to-do list. If your goal is to become a multimillionaire, write it down — along with an action plan for making it happen.
Understand Value Over Cost
“The wealthy person has three best friends: her attorney, her accountant and her advisor,” said Justin J. Kumar, a senior portfolio manager at Arlington Capital Management. “The wealthy tend to use the law and tax code to their advantage when figuring out how to maximize their wealth, especially over multiple generations, and they are not afraid to spend money up front for counsel to get these answers.”
Kumar explained that it’s common for middle-income Americans to cut corners in order to save money, yet ultimately find the results lacking. “The wealthy look at value over cost, but they are still prudent in their decisions,” he said.
Eat Out Less
People who are concerned with saving money often skip the daily latte. The rich enjoy small splurges whenever they want and instead look at saving from a broader perspective.
Author Paul Sullivan and colleague Brad Klontz, a clinical psychologist with an academic appointment at Kansas State University, conducted research on the differences in spending habits of the wealthiest 1% and the wealthiest 5%. The 1% spent 30% less on eating out and saved it for retirement instead.
“And that, more than the cost of a Starbucks latte, is what, over time, separates the wealthy from everyone else on the wrong side of the thin green line,” Sullivan wrote in a column for Fortune.
Be Your Own Boss
Employees work to make their bosses rich. If you aim for true wealth, consider starting your own business. According to Forbes, nearly all of the 2,095 people on its list of 2020 billionaires made their fortunes through businesses, products or investments they or a family member had a hand in creating.
“Many middle-class workers think that starting a business is too risky,” said Robert Wilson, a financial advisor and frequent contributor to CNN, NBC and CBS. “The wealthy understand that what’s risky is allowing your time and earnings to be dictated by a boss who couldn’t care less about whether you get what you want for your life.”
Thinking Frugally – What does that really mean?
Millionaires did not get to where they are by being extravagant. Their temperate thinking habits came from a disciplined mindset. Earning money and enjoying the journey on the road to earning wealth is difficult. But when it comes to spending, we are so ready to whip out the credit cards and spend, spend, spend. We end up spending what will take us a year or more to earn. That is a hopeless situation and fills one with dread, despair, and hopelessness. How do you end that kind of merry-go-round? You know the answer to that. You jump off that merry-go-round and take the time to develop the thinking of a millionaire.
Most millionaires enjoy what money will buy. However, they spend very carefully and with an appreciation of the value of what they purchase. Spending time with family, travel, and contributing to a worthy cause are often cited as the top three areas for parting with money, because those add a quality to life that has more meaning than owning stuff. On the road to gaining wealth, a person pays attention to money earned, money spent, and what the things owned are costing. Those with many millions or billions are more able to maintain the lifestyle of their choice by spending more, but for the emerging millionaire, that is not the case. Unless a millionaire was handed his wealth, he will be aware of every penny, ever percent of interest, and every wasteful activity in his life. Amassing large sums of money is not gathered by paychecks alone. It is attained from being economical and wise investing along with the paycheck.
It’s been said, “If you’ve got it, flaunt it.” Most millionaires don’t need to flaunt it. They are content and fulfilled within themselves and have little need to let the ego lead his way. Entrepreneurs have learned that nothing is a sure thing. If you manage your money effectively, it can support you and your family for a lifetime. If not, you start over. That in itself is a motivation to spend cautiously. Studies show that most millionaires shop bargain stores, just like the rest of the population. Walmart, Costco, Target, and J.C. Penny’s work just fine for them. The rich who intend to stay rich don’t necessarily own new expensive cars, live in mansions, or throw money around lightly to amuse themselves. They’ve developed a life with values that transcend the need for showing off, bragging behaviors, or ego trips. Those who have not, often end in a bad place. The rich who intend to stay rich also don’t live with an attitude that they are better than others. You can read about people like that every day in the paper, especially in Hollywood. They tend to think they should not be required to follow the same laws, be respectful, or care about the rest of us. It is a way of thinking that will eventually backfire.
Warren Buffet is a study in frugalness. He has been interviewed and written about over and over, partly because he is such an amazing role model for those wanting to become wealthy. Buffett continues to live in Omaha, NE in the house he bought in 1958 for a little over $31,000. He has stated that he loves McDonald’s hamburgers and cherry coke. At Berkshire Hathaway, which is his dream job, he continues to take a $100,000. salary and lives on that amount. He keeps track of every dime that he has, and knows exactly where it goes. He knows what everything in his life costs him to have and maintain, and he refuses to own things that drain his bank account. He says he values his job, his family, and continued learning.
Looking at Buffet’s life is a study in contrast from what most think a millionaire’s life should be like. He has said if most of us would stop up the outflow of money that leads here and there, with no accountability, we would be on our way to amassing our own wealth. Buffet cites the biggest problem young people get into is credit card debt. If you don’t have it in the bank, don’t spend it.
Millionaires Think Owning a Home Is Important
Millionaires in America own their own homes. There are two styles of thought about that. One group uses their home as a line of credit to finance investments that they feel they can’t pass up, but their money is tied up elsewhere. It’s important to note here that investing money in diverse assets is a good way to work on long-term growth and a way to make sure you will have enough money for your chosen lifestyle after you are unable to work; however, investments usually require the money to be held in the account for so long, or you pay large penalties. You have to know what you are doing as well as use advisers.
Real estate can be a good investment, though, like everything else, it can drop in value and the markets can make you wait a long time to realize any growth. Having a paid-for home is a nice asset to have. Knowing you have a place to spend your golden years, and you’ve taken care to maintain that home, takes a lot of your plate. The other side to that is, for many millionaires, having a large mortgage is a tax benefit they want. Depending upon the cost differentiation between what the mortgage cost you, and the tax write-off will be your deciding factor.Interested in learning more? Why not take an online Habits of Millionaires course?
Diverting for the moment to a small discussion of taxes, an accountant is necessary to help you manage any spending associated with your work to claim at tax time. Job costs continue to be a source to lower your taxable income and you need to use everything that can legally be used to save money.
Think About Investing
Getting back to Warren Buffet, he was educated and learned about investing in the financial sector. He made his millions from investments, and his billions from re-investing what he made from that. Investing is a way to wealth, but you have to know what you are doing. There are day traders who do nothing but sit home and study the markets and trade on the whim of the markets. That is a full-time job and you rarely make a million. You can make a living if you are good at it, but not millions. To make millions in the stocks, bonds, or real estate investing, a person must diversify to withstand the ups and downs of the market. Unless you simply enjoy spending all of your time watching the markets and being in the financial business, hire a certified financial planner, an accountant, and an attorney to handle it for you. If that is your passion, then you may just enjoy the ride. It still requires a team to keep the investments balanced correctly, and capital gains from investments are in the lowest taxed bracket of all things taxable.
The common number of advisers in today’s markets is two or three — and most use at least three. One of those investment advisers is a financial planner who works up a long-term plan that will support retirement, the education of children, insurance for losses, and other financial issues that appear. This person works all this out and will update you a couple of times a year, so you know where you are and where you are going. The accountant maintains figures needed for tax time and keeps the financial planner up on changing tax laws. Both are full time careers. On top of that, an attorney is good to have on retainer for the adviser and the accountant to work with, as needed, and for estate planning.
Remember one of the important parts to becoming and staying a millionaire is strategic planning, prefaced by strategic thinking. Don’t skip this in any part of your life, especially with money management. Experts agree that everyone has specific financial needs to support them through struggles that can come out of nowhere. Each of us should have an emergency fund that will support us through three to six months without income. We should each have a budget, follow it, and it should have spending controlled to accommodate for the emergency savings and investing. Entrepreneurs are very forward thinking and are always looking for the next big thing, so be prepared with some funds that can also be quickly liquidated.
A few things to think about when investing: Stay away from fads and anything that explodes quickly. If you are in it for the explosion, you might make some money; however, for most, it is the explosion that captures our attention — and by that time, the dust is beginning to settle and it may not be the right thing to do.
Conclusion
It doesn’t matter how rich you are in terms of annual salary, the money that you have is in constant motion. It will grow or shrink depending on where it’s invested. If you invest your money in mutual funds, stocks and retirement accounts, your money will grow at a steady rate.
On the contrary however, if you choose to place your money into other places such as into your business or to gamble on the stock market than there is a chance that your investment can grow to unexpected levels or even become completely nonexistent due to unforeseen circumstances