12 Ways Rich People Handle Their Money

We all catch ourselves doing it sometimes—thinking about rich people like they’re from another planet, or perhaps living on one. 

But there are things rich people consistently do—and don’t do—with their money that helps to make them and keep them rich. 

Here are twelve lessons we can all learn from millionaires:

Lesson One:  It’s All About Delayed Gratification

It’s ridiculously easy to make that impulse purchase—be it the latest gadget from Apple or a simple container of gum at the supermarket checkout line. 

In a world where credit cards let us overextend easily, those impulses can cost us a great deal in the long run. 

But one thing many millionaires have in common is the ability to resist that impulse to buy when the urge first hits.

According to MarketWatch, the number of high-worth investors who believe your long-term financial goals should take priority over your current desires is something like eight in ten. 

Rich people decide well in advance what they want and are willing to take the long route to making it happen, even if that means sacrificing some things they would like in the meantime.

Furthermore, Greg McBride of Bankrate says that spending first and trying to save what is left over is putting the cart before the horse and usually results in having no savings. 

Available money has a way of getting spent.

Lesson Two:  Use Credit to Your Advantage—and Don’t Let it Use You

For those with good self-control and the funds to pay off their balance each month, rewards cards are a very real way to earn a little extra money on the side. 

Some rich people who could afford to pay for a house or a car in full still opt for a mortgage or loan if the interest rate is low enough. 

This allows them to invest the money they would have otherwise spent and turn a profit on it.

Likewise, some people with student loan debts choose to make only the minimum monthly payment that they can in order to turn around and invest the money they could have spent on extra payments in retirement instead.

Sometimes credit is helpful in starting a business. 

Again, it’s about long-term plans, not short-term gratification.

The only caveat with credit is that you should be careful not to get carried away and carry large balances on cards, as they will hurt both your wallet and your credit score in the long run.

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Lesson Three:  Invest for the Long Term

Some people trade and speculate with remarkable success. 

The vast majority of high-net-worth investors, however, buy traditional stocks and bonds and hold onto them literally for years. 

Some 85% of them do it, and Warren Buffett himself endorses the practice.

There have been peaks and valleys—lots and lots of them. 

There were times when the market seemed hopelessly bearish. 

But overall, it has ended up considerably higher than where it started.

Sometimes, when it comes to the stock market, slow and steady wins the race.

Lesson Four:  Factor the Impact that Taxes Can Have into Your Investment Decisions

The old saying about the only two things you can count on in life being death and taxes is true of the stock market.

Taxes have a way of eating into capital gains like no one’s business. 

That’s why more than half of high-worth investors feels that pursuing opportunities with better tax deals is more important than pursuing ones with higher returns generally.

You only make as much as you keep when it comes to the stock market, which is why tax management is such a big deal. 

Schwab details which kinds of investment can go easily in taxable accounts and which should go in IRAs or 401(k)s. 

Apparently, municipal bonds, stocks that pay qualified dividends, ETFs, and stocks you plan to keep for more than a year are fine for taxable accounts; where REITs, high-yield bond funds, one-year or shorter investments, and anything that might generate high capital gains should go in a tax-advantaged or tax-deferred account.

Lesson Five:  Make Sure Your Portfolio Contains Some Tangible Assets

With tangibles, there’s a sweet spot between having enough to have a well-diversified portfolio and having too much. 

It is, however, a good idea to have some investments like farmland, real estate, art, or jewelry that make their own wealth and grow in value over time. 

About half of high-worth investors hold such investments as part of their portfolios.

Additionally, many people take a certain amount of aesthetic pleasure in owning art, gold, or other tangibles as investments that they simply do not in the pure numbers game of the stock market.

Lesson Six:  Invest in Things You Have a Personal Understanding of

If I were to invest in metalworking, I would have no idea what the market would do as I have no real knowledge of metalworking. 

If, however, I were to invest in a company that makes my favorite pet supplies, I would have a much better idea of what to expect. 

I would know which choices displeased me as a consumer and which ones might displease other consumers as well.

Such was the case with Marks and Spencer, according to Business Insider. 

When they made business decisions that put them out of touch with the consumer back in 2012, analysts didn’t immediately pick up on the fact. 

It was the consumers themselves who did pick up on it as they were able to predict the dip in stock.

The lesson to be learned here is that analysts know about the market in general, but often it’s the regular person who’s familiar with their particular market who catches a downturn well in advance. 

If you have a gut feeling about a market in which you are knowledgeable, don’t simply ignore it and get on with your day. 

Do something about it.

Lesson Seven:  Make Getting Out of Debt a Priority

The sad truth about debt is that due to interest, it multiplies. 

The $1500 on your statement is going to cost more than $1500 by the time you pay it off. 

Some credit cards even include this information at the bottom of your statement somewhere, letting you know that at the minimum monthly payment it will take x months to pay off, and you will pay some estimated y dollars.

Usually, those y dollars are a lot more than the amount on your regular statement. 

A good way to think about paying off debt is that you save money on interest for every dollar you pay back early, and a penny saved is a penny earned.

Lesson Eight:  Diversification isn’t Just for Investments—It’s Also for Income

A lot of wealthy people have more than one source of income, in case one dries up. 

For some, that means investments that provide income.  For others, it means that dreaded second job.

In the United States, at-will employment is fairly common, meaning that you can quit, or your boss can fire you because one of you sneezed at an inopportune time. 

Having back-up can mean the difference between getting by and ending up on the streets. 

Wealthier people understand that diversifying their income is good insurance for when life happens, and their main source of income goes kaput for whatever reason.

Lesson Nine: Be Prepared for Leaner Times

Stuff happens. 

You get laid off. 

Indispensable possessions get lost or stolen, or they break down. 

There will always come a time when you need that extra chunk of money.

Some people reserve credit cards for times like these, but those can be real vampires about the interest rates.

Smart people set disposable income aside for that rainy day.

It can be as simple as putting aside ten percent of your income into a savings account. 

It can be as complicated as laddering CODs as Bankrate suggests. 

Either way, the current recommendation is to keep 9 months to a year’s worth of expenses tucked away somewhere.

It seems like a lot, but with unemployment rates being what they are, it’s no longer uncommon for Americans to be out of work that long, and the alternative is living on credit, which again, is not the ideal solution.

Lesson Ten:  Live Below Your Means

When you picture wealthy people, you often think of mansions and yachts and expensive sports cars. 

While it’s true that some wealthy people can and do indulge in luxury items, others make the conscious decision to live below their means. 

It doesn’t matter how much money you make—if you spend all of it, you will still end up short of cash.

According to Entrepreneur, Warren Buffett lives in a house that originally cost him $31,500 back in 1958.  Could he afford a huge, luxury mansion?  Of course.

But that’s not the way he rolls. 

And it’s not the way many wealthy people roll, either. 

If you wish to increase your wealth, one of the easiest ways to do it is to live below your means.

Lesson Eleven:  Make Basic Math Your Friend

Keeping track of savings and expenses doesn’t require calculus. 

Neither does working out the expenses involved in two alternatives and choosing the lesser of the two.

Let’s say your Apple laptop needs new parts:  the hard-drive is getting noisy, the fan no longer keeps the computer cool enough, and the battery is perpetually informing you that it needs servicing. 

Some people would assume that it’s cheaper to buy a new machine than it is to sink all that money into new parts and repair costs.

Not a millionaire. 

A millionaire would utilize his or her resources to assess how much the parts would cost—and might find that it’s less than $500 worth of parts as opposed to the thousands that a new computer would cost. 

And then he or she would learn to repair the computer to get a few more years out of it before having to buy a new one.

Even though it’s not as exciting as owning the latest model, it’s much more cost-effective. 

And at the bottom of many of the wealthiest’s best strategies is cost effectiveness.

Lesson Twelve:  Don’t Confuse Wants With Needs

This is where the article comes full circle.  Remember that latest Apple gadget you could spend money on?

That’s a want, not a need.

Millionaires are easily able to distinguish between what it is they truly need and what it is that they just want. 

The flashy Lamborghini?  Want.

The roof over your head?  Need.

Millionaires reinvest in ways that will increase their wealth, not make them look more wealthy. 

You can do that too. 

The money you don’t spend on the latest Apple gadget can be invested, or put into savings, or put into retirement.

Conclusion

There are many unexpected ways that the rich handle wealth that in turn garner them further wealth, and many valuable lessons to be learned from how they do so. 

They diversify income, diversify investments, and don’t spend money they don’t need to. 

They don’t impulse buy.

And perhaps most importantly, they don’t necessarily spend in ways that flash their wealth around. 

All of these are examples you can take in your life to increase your wealth.  Especially the last.

Next time you’re tempted to buy that luxury item, remember that keeping up with the Joneses may, in fact, be keeping you down.