It might seem like the rich know something about money that the rest of us don’t. After all, the richest 1 percent of people now hold half of the world’s wealth, according to the Credit Suisse Global Wealth Report.
Maybe the rich do have secrets to accumulating wealth, but that doesn’t mean what they know has to remain a mystery. Here are seven things every rich person knows that you can use to build your own wealth:
1. Don’t Waste Money to Impress Others
Most rich people don’t spend their time and money trying to impress others.
“They are not in a race,” said Mark. “They know they have made it, so their attention is not on what others think.”
In fact, many wealthy individuals wouldn’t have become rich if they had spent their hard-earned money buying things to keep up with others, he said. Living below their means and rejecting big-spending lifestyles are key secrets of America’s wealthiest individuals, according to the bestselling book, “The Millionaire Next Door.”
Spending money to appear rich before you actually are is a surefire way to sabotage your wealth goals. So, forget about the Joneses and focus on what matters: accumulating your wealth in the coming years.
2. Have Plenty of Liquidity
The rich make sure they have sufficient liquidity, or cash, to cover their short-term needs.
The fact that rich people have money set aside for rainy days isn’t solely a function of their wealth. They have cash reserves because they are disciplined enough to save.
Everyone should aim to build an emergency fund with enough cash to cover six to nine months of expenses, Mark said. However, you don’t have to set that much aside all at once. You just need to be working toward that goal with every paycheck. With that in mind, you should arrange to have a set amount automatically transferred from your checking account to savings each month.
3. Costs Matter- Save Money whenever you can
Unexpected costs and fees can easily eat away at your wealth.
“Wealthy people understand every fee they pay means less money in their pockets,” said Taylor Schulte, CEO of Define Financial in San Diego.
In particular, the rich pay attention to investment fees — something that many people overlook. For example, more than half of workers don’t know they’re paying fees on their workplace retirement savings accounts, according to a study by the National Association of Retirement Plan Participants. Yet, those fees can eat away at your returns, said Schulte.
Even small fees can have a big impact. If you invest $100,000 over 20 years and pay a 1 percent annual fee, your portfolio value will be about $30,000 less than if you had paid a 0.25 percent annual fee, according to the Securities and Exchange Commission’s Office of Investor Education and Advocacy.
4. Spending Must Align With Goals (Never overspend)
One of the keys to being rich is having goals, said Michael Kay, president of Financial Life Focus and author of “The Feel Rich Project: Reinventing Your Understanding of True Wealth to Find True Happiness.”
According to Mark, the wealthy only seem to spend money on things that they care about. The rest of us can learn from this by setting our own goals and then monitoring our spending to see if it aligns with those goals.
“Are you really spending in accordance with what you value?”. “Do the beliefs and realities jive?”
5. Year-Round Tax Planning Is Crucial
The rich don’t wait until April to start thinking about their tax returns. They take steps throughout the year to lessen the impact of taxes, said Mark. With the help of tax professionals, the wealthy also avoid making costly tax mistakes.
Additionally, the wealthy protect their savings by making charitable contributions throughout the year — gifts of cash, goods or both, said Mark. If you itemize on your tax return rather than take the standard deduction, you can deduct charitable contributions to qualified organizations. The more you deduct, the more you reduce your taxable income.