People with a lot of money tend to spend, save and invest in different ways. But the very rich, those multimillionaires with a net worth above 5 million, have a lot in common when it comes to managing their money. When many millionaires share certain habits, that would explain why their finances look alike too.
A study found that the richest people in the world do 5 things with their money that, according to financial education experts, you should be doing too, even on a smaller scale.
What do rich people do with their money?
1. Delay gratification
Eight out of ten high-net-worth investors say that investing for long-term goals is more important than paying for current wants and some current needs. According to financial analyst Greg McBride, if he had to boil wealth building down to a single piece of advice, it would be: “delay gratification.”
And what does delaying gratification mean in personal finance? Simply put, it’s the famous “pay yourself first“. In other words, if you spend first and then try to save whatever is left over, as a rule you’ll find there’s nothing left to save.
Paying yourself first means that the first thing you should do when you receive your pay cheque or main income is to set aside the amount you’ve decided to save and put it into savings and investments. Once that money is set aside, you can get on with your life. And it has to be a habit. In fact, it’s the millionaire habit that has created the most wealth.
He also advises learning to tell real needs apart from whims.
See also: Ideas for saving on the small things that add up to large sums each year
2. Use credit wisely
It isn’t true that the rich don’t use credit cards, even though personal finance advice says to avoid them. Nor is it true that debt is bad. You simply have to know how to use it so that it generates wealth for you.
Rich people know how and when to use a credit card. They use the card to pay for things they were going to pay for anyway. But they pay off the full balance at the end of the month so they don’t have to pay those annoying and abusive credit card interest charges. The advantage is that they make the most of their card payments to earn points, discounts or certain rewards. At the end of the day, it’s free money for them.
As for other kinds of credit or loans, it’s clear they rarely took out a personal loan to pay for a holiday they couldn’t afford. But it’s true that when they’ve had to start their company without money, many of these millionaires have even moved credit from their cards into their accounts to fund their business.
In other words, they used credit and loans with the idea of growing their business and getting more money in return. This strategy isn’t risk-free, but without taking certain risks, many companies would never have been created.
See also: 10 ways the rich think differently from everyone else
3. A long-term investment strategy
Everyone wants high returns in the shortest possible time. That’s why people throw themselves into the world of investing, but through trading. And traders lose money time and again.
See also: 4 psychological traps we can fall into when it comes to money
By contrast, 85% of high-net-worth investors made their great fortunes through long-term investing. That is, buying and holding for periods of more than 10 years. It’s true, this investment strategy is boring. Even truer is that if investing is fun, you’re losing money. Good investing is boring: buy and hold.
As Warren Buffett says every year in his valuable investment advice, don’t watch the market closely: money is invested by becoming the owner of a piece of a company for a long period of time. If you buy good companies, buy them for the long term, and your investment will be very profitable in 10 or 20 years.
4. Also invest in tangible assets
Although we always recommend investing in liquid assets, the truth is that the biggest fortunes have been built by investing in real estate, which is a tangible asset and not exactly a liquid one. Here we explain what liquid assets are.
Real estate, together with owning a business, is among the most profitable ways to diversify an investment portfolio. Of course, stock market investments are never missing from a wealthy person’s portfolio.
That said, one of the differences between the rich and the middle class is that the rich don’t buy homes to live in them but to do business with them. For them, real estate isn’t something sentimental but an investment product that, like shares, will pay them “dividends” when they rent the properties out, and in the long run they could sell them thanks to appreciation.
Here are the 8 ways to invest in real estate.
Featured image: 2Tales, CC BY-SA 2.0, via Flickr.
