Smart Money Habits of the Rich: What are they & How to Adopt Them

Why do you need to adapt the smart money spending and managing habits of the rich?

Well, for starters, we are all not rich!

financial freedom isn’t something most of us are born with but spend our whole life to strive for it.

Of course! Why shouldn’t we?

After all, money is the basis of all our basic needs!

But the truth is, most of us would just wish to win a lottery than to actually work for it!

In all honesty, there isn’t just a single trick that’ll make you rich, but a series of strategic plans and whatnots.

But for that to happen you have to cultivate a few new money habits which might be uncharted territory for you.

I mean, you probably do not have a “Multi-millionaire” tag to your name just yet otherwise you won’t be reading this article.

But obviously, that might change tomorrow if you decide to take action today!

So let’s get you familiarized with some smart money habits of the rich and use that to your advantage.

This post contains affiliate links, read the disclaimer for more information.

Here are the smart money habits of the rich,

They Don’t Spend Their Money Like Most (Not Rich) People Think

In other words, they are the most frugal people you’ll meet! In the path to attaining financial freedom, the first and foremost lesson one has to learn is to “be unapologetically frugal”.

Being rich a state where you have the option to up your expenditure game like crazy but still choosing not to. Given below is a graph comparison (just for a little perspective) between the mindsets of “rich” and “not so rich” people.

You might think that those who earn millions constantly spend on expensive things, which is actually far from reality.

Not what you expected? Here are some of the facts that’ll back this up –

Warren Buffett lives in a house that he bought in 1958 for around $30,000.
Mark Zuckerberg does not own any fancy/expensive car rather he drives a Honda Fit hatchback nor does he owns fancy outfits. He usually wears the same grey T-Shirts almost every day.
John Caudwell (worth $2.7 billion) rides his bike 14 miles to work every day.
Jim C. Walton (son of Walmart founder) drives an old truck.

They Save & Grow Their Income in the Most Efficient Way Possible

Do you know that the annual inflation rate for the United States is 1.7% for the 12 months ended August 2019 compared to 1.8% previously, as published September 12, 2019, according to the U.S labor department? (Source: US-Inflation Calculator)

What it means is,

Every year a dollar is worth much less compared to the previous year due to inflation. And this goes on almost every year!

So just holding onto your savings and income won’t do you any good, and it can also make you lose money. This might be a reason why the rich choose to use those savings to invest and make more money rather to just hold it.

Now I get it if you don’t want to invest your hard-earned money just yet because of the risks involved. So, for now, your best bet would be opening a high yield savings account.

Whether you have a paycheck to paycheck life, you’re self-employed or you run a business, simply changing or opening a new high yield savings account will give you much higher returns.

Here’s a simple challenge for you, check out the banks for a high APY (Annual Percentage Yield) online savings account and then compare your current return rates. But why online?

The answer:

Higher interest rates!

Online banks have lower overhead costs(since they have no physical branches, bank tellers, etc.). And having fewer expenses converts to higher APYs for customers compared to the traditional banks.

Now here’s a fairly significant question:

Which High Yield saving account to choose from?

They keep their expenses low

Not too surprising but still a little hard to believe right? How come the make millions and still manage to keep their expenses low?

Here are a few ways you can keep your expenses in check:

Don’t spend on designer materials: Ditch all the brands that are unnecessarily overpriced, don’t buy it. They may seem “luxury items” and all but it’s not really worth it. They just burn a hole in your pocket for just the sake of mere showoff.

Once saw a picture on Instagram (loved it) that had Bill Gates, Mark Zuckerberg, and Warren Buffet, and below it was Captioned “Billions of dollars in this picture, yet not a single Gucci item to be seen”.

Very interesting! Our goal should always be to “Be rich” not “Look rich”.

Automate your bills: When you’re able to pay your bills on time, a heck lot of extra fees can be saved. Automating your bill payments will allow you to do so without giving it too much thought.

For example, Trim is really good Robo-finance app that’ll do it for you. Moreover, Trim can negotiate your internet bill, get you better car insurance and so much more from just a tap on your phone.

Cashback While shopping: If you’re a frequent online shopper like me, you need to signup for Rakuten (formerly known as Ebates). An online platform where you can get cashbacks every time you shop online.

Whether you buy from Amazon, Kohls, Nordstrom or anywhere else, Ratuken will get you a cashback every time (only for online purchases)

They Invest

Millionaires make their money work for them, and that is how they stay rich. Check the article on Investing For beginners to learn about the need and approach to investment.

Whenever the term “Invest” is heard by us, we automatically assume investing is all about stocks, real estate, properties, businesses, etc.

But have you ever realized that the best investment you can do is on your own self? Learn a new skill, that’ll count as a valuable investment.

They Have More Than One Income Streams

In fact, according to Inc.com,

65% of all self-made millionaires had at least 3 streams of income.
45% of all self-made millionaires had at least 4 streams of income.
29% of all self-made millionaires had 5 or more streams of income

The idea here is simple, having multiple income streams allows you NOT to depend on a single income source. Diversifying your income portfolio will not just increase your income but can also save you from a financial crisis. Even if one of your sources will tank, the rest will make up for it.

If you had a side hustle that makes you a little more money every month, after a period of time, you will no longer need to keep that soul-sucking job you had from the last 10 years.

Here’s an idea, start a side hustle from home –

Whether you are engaged with your full-time job or you’re a busy mom, “Work From Home Jobs/Businesses” is the best way to build multiple streams of income.

Building a side hustle (This blog) in college has allowed me NOT to join the corporate world after graduating.

Check out this list of best “Work From Home Jobs” and see for yourself what works for you!

They constantly educate themselves financially

When it comes to financial education, which is an essential part of adult life, it is nowhere to be seen or mentioned in our academic syllabus growing up.

Topics like: How to do your taxes, how to save up for retirement, Savings accounts, 401k, investments, etc usually remain the areas we don’t have a clear idea about…even after halfway through adulthood.

Which is why it is important for us to teach ourselves about our finances. It is our sole responsibility to wake up and not depend on others whether were being taught or not.

For example:

Amazon is a massive company with Hundreds of Billions of dollars under its belt, but do you know that in 2018 Amazon paid ZERO federal taxes for $11.2 Billion in profits? (Source: Washington Post)

Yup! Zero. Zilch. Nada.

I mean, how financially knowledgeable you have to be to plan strategies that smart and thoroughly legal at the same time.

Financial Education, people!

They Always Have Long Term Goals

Most of us are a victim of poor financial literacy. Throughout over lives, we’ve developed certain habits that keep us being broke not advance to any state of financial freedom.

So recently I came across a situation where I had a keen interest to buy a smartwatch (worth $295), I had the money, I wanted it and I was all in to buy it, almost hit the “Buy” button but canceled the last second.

Regretted not buying that high-tech watch for an entire week!

Then after that week, I had an option to buy an online course (on the topic of making money) worth $197, I knew it was essential but somehow I was thoroughly second-guessing the value it’ll provide me so I decided not to buy it!

Did not affect me at all!

Then it hit me,

Throughout our lives, we are always willing to pay our $295 in stuff that is pure useless, unnecessary and materialistic than to invest our $197 that’ll improve our skills and better our lives in multiple ways.

This might be a big difference between the top one percent of wealthy folks and the rest.

That is, the rich pay themselves first!

They invest in developing their skill first
They try to diversify their income portfolio first
They test out different ideas first

In short, they live below their means so they can fund their own dreams first!

Yes, many of them still spend money extravagantly, but what you don’t know is their income is far higher than what we can fathom, we only see the expensive purchases they make.

If we speak of average, here are some money statistics that might scare you:

68% of the workforce live on a paycheck to paycheck basis.
26% of families have no emergency savings.
The average household has $7,283 in credit card debt.
The average monthly new car payment for a typical household is around $480.

The average live beyond their means, that’s why they are the average!