What is it that rich people do that makes them wealthy? Popular thinking would appear to indicate that they have a different mentality. But is that pure genetics, or is it possible to learn some of the behaviours and processes that make the rich, rich?!
In Tom Cory’s collection of books such as Rich Habits, and Rich Habits Poor Habits, he observes the habits of both the rich and the poor over a five year period. Here are some of the spending habits the rich tend to adopt:
- 81% use credit-cards offering reward money
- 64% say they live in a modest home
- 60% say they are frugal with money
- 44% only purchase used cars
- 41% spend under $3,000 on annual vacations
Even Warren Buffet says he’s frugal and prefers to eat at home because it’s cheaper. But why, with all the money the rich have, do they choose to be frugal?
Because frugal habits are typically engrained in the individuals’ lifestyle before they become rich. Habits, both good and bad are hard to break. Frugal habits stick even when you don’t need to be frugal.
If you currently have bad money habits or wish to further improve your money management we suggest reading on to learn about some of the best practices employed by millionaires.
Smart decision making
Although being frugal may indeed contribute to a life of continued wealth, it does not necessarily guarantee on its own that once you’re rich, you’ll stay rich. Sustaining wealth requires smart decision making around your money and your lifestyle. This includes how and where you spend it, how you use it and how you invest it. While this may appear to be a simple concept, in truth it’s not so easy to implement.
So, how do the rich manage it?
In short, by making use of every advantage available to them. For example, using compound interest to expert effect and continually educating themselves to ensure total awareness of what’s happening in the world.
Tenacity and patience
It’s worth noting that many self-made millionaires didn’t necessarily ‘make it’ from the get-go! A considerable number display extraordinary tenacity and patience. If they don’t initially succeed often they try different approaches until they do. Each failure isn’t a failure. It is a learning point and an integral part of the process you need to follow to gain and keep substantial wealth.
Diversify to spread both wealth and risk
When it comes to investing, wealthy individuals use the power of diversification across many investment vehicles including stocks, bonds, property, high ticket commodities, private equity, hedge funds and start-up financing. More recently diversification has included crowdfunding, peer lending and cryptocurrencies.
In addition to investing the money they have, the wealthy recognise that diversification across multiple streams of income is also tremendously important in obtaining real wealth. Diversification comes with the additional upside that losing one income stream means you can still retain a viable lifestyle while working to replace the lost income stream. It’s all about minimising risk and maintaining lifestyle. The overarching principle here is to reach and maintain financial goals by making the money you have work for you.
Make saving for retirement a priority
Another move the wealthy tend to make is to ensure saving for retirement is a priority. They focus on saving earlier rather than later. Starting sooner means saving less in the long run because you get more opportunity to take advantage of market gains and compounding.
Creating robust financial plans
Rich people recognise the importance of surrounding themselves with positive personalities and the most capable people. This also extends to the professionals they hire to manage their finances, form their financial plans and preserve wealth.
The rich know that using a financial professional makes sure they have the skills on tap to help them map out a plan to make more money and create a comfortable future for them and their families.