What Do Rich People Do With Their Money? As a money expert at money-central.com, we’ll explore the financial strategies and money management habits of the wealthy, offering insights into how they grow, protect, and leverage their assets. Discover how to achieve financial independence and secure your financial future, regardless of your current income, with smart spending, tax optimization, and expert advice. Let’s explore wealth management, financial planning, and strategic investing for financial success.
1. Understanding The Landscape of Wealth: More Than Just Money
Is wealth purely about the size of your bank account? The conventional definition focuses on financial assets, but true wealth encompasses a broader spectrum. It includes social connections, robust health, and the freedom to use your time as you wish. While financial wealth provides a foundation, the integration of these other elements creates a holistic sense of prosperity.
Think of it this way: possessing $2.2 million, the threshold for wealth according to Charles Schwab’s 2023 Modern Wealth Survey, may not translate into feeling wealthy if you lack the time to enjoy it, suffer from poor health, or are socially isolated. These factors significantly impact overall well-being and perceptions of wealth.
To truly maximize wealth, it’s essential to nurture all four types: financial, social, health, and time. By doing so, you can create a life that is not only financially secure but also fulfilling and enjoyable.
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1.1. High Expectations and the Pinnacle of Financial Success
Reaching the peak of financial success often brings a new set of expectations. Those who achieve substantial wealth begin to anticipate certain levels of service, expertise, and opportunities that may not even be on the radar of those still climbing the financial ladder. This is where understanding the sophisticated strategies employed by the ultra-wealthy becomes invaluable.
“We believe that everybody should have access to the same strategies that wealthy people expect. And that’s what we’ve built here at Modern Wealth Management. It’s the ability with a very thorough team to deliver the strategies that ultra-wealthy people expect, but that the millionaires next door don’t even know exists.” – Dean Barber
1.2. Social Security: An Overlooked Component of Wealth
Have you ever considered Social Security as part of your wealth portfolio? Many overlook it, viewing it merely as an entitlement program. However, the reality is that Social Security represents a significant chunk of your accumulated wealth. Throughout your career, you contribute a substantial amount, and understanding how to maximize those benefits is crucial.
Consider a typical couple receiving combined Social Security checks totaling $4,000 to $5,000 per month. To generate a similar income stream using the 4% withdrawal rule, you would need approximately $1 million to produce $40,000 annually, or $1.5 million to match the Social Security income. Recognizing Social Security as an asset and strategically planning how to claim it can significantly enhance your overall financial well-being.
“It’s just one that gets overlooked because people think that it’s an entitlement program. But the truth is it’s your own money and there are many different ways that you can claim it. The wealthy people that I’ve worked with understand that it’s their money and they go to all the lengths necessary to get every dollar out of that system. They don’t fall into the trap of thinking that they put their money into it and want to get it out as soon as possible. They understand that it’s an asset and it needs to be treated like any other asset. It needs to be analyzed and scrutinized to get the most out of it possible over your lifetime and your spouse’s lifetime.” – Dean Barber
2. Six Financial Habits That Set Wealthy People Apart
What actionable steps do wealthy individuals take to manage their money differently? Let’s explore six key habits that distinguish the wealthy from the rest:
- Spend Wisely
- Avoid Paying Unnecessary Taxes
- Hire Professionals
- Understand How to Use Leverage (Debt and Insurance)
- Understand the Benefits of Charitable Giving
- Communicate Their Plans with Their Beneficiaries
Let’s examine each of these habits in detail.
2.1. Spending Wisely: Value Over Impulse
How do wealthy people approach spending? One of the most distinguishing characteristics of wealthy individuals is their disciplined approach to spending. They prioritize needs over wants and carefully consider the long-term value of their purchases. Wealthy individuals look for the best deal, regardless of their financial status.
“The number of opportunities that are available in the United States to people and what people have done to get their wealth never cease to amaze me. One of the main things that I see is they have good spending habits. They spend wisely. They think about what they want to spend money on versus what they need to spend money on. And even though they’re wealthy, they still look for the best deal.” – Dean Barber
Instead of accumulating disposable items, they focus on acquiring assets that appreciate over time. This mindset ensures that their wealth continues to grow and provide lasting benefits.
2.1.1. What About Those Who Don’t Feel Wealthy?
What habits prevent some from feeling wealthy, even with substantial income? Those who don’t feel wealthy often accumulate possessions with little or no long-term value. Unlike the wealthy, who carefully consider the future worth of their purchases, they may prioritize immediate gratification over lasting value.
2.1.2. Planning for Expected and Unexpected Expenses
How do wealthy people prepare for life’s uncertainties? Wealthy individuals understand the importance of planning for both expected and unexpected expenses. They proactively discuss potential disruptions to their wealth with peers and financial advisors, allowing them to make informed decisions without succumbing to emotional reactions.
“Wealthy people understand the potential things that could come up that people may not expect that could disrupt their wealth. It’s no different than a pilot that has a checklist. They plan for the unexpected. The wealthy are not going to get caught making an emotional decision. They understand that fear and greed are the two most dangerous emotions when it comes to money.” – Dean Barber
By anticipating potential challenges, they avoid emotional decision-making driven by fear or greed, ensuring their financial stability remains intact. This proactive approach sets them apart and safeguards their wealth.
2.2. Avoiding Unnecessary Taxes: Strategic Tax Planning
Are wealthy people more proactive in managing their tax obligations? A hallmark of the wealthy is their dedication to minimizing unnecessary taxes. They meticulously adhere to the letter of the law, ensuring they never pay more than absolutely required.
“In some of the cases, wealthy people might have a couple of CPAs that are working on their assets. When you think about gross income that you have, if we can net it out to a better number with successful tax planning strategies, that’s certainly going to affect them positively.” – Bud Kasper
They employ sophisticated tax planning strategies to optimize their financial situation, often consulting with multiple Certified Public Accountants (CPAs) to ensure comprehensive coverage. By actively managing their tax obligations, they retain more of their wealth and maximize its potential for growth.
2.3. Hiring Professionals: Recognizing Expertise
Why do wealthy individuals rely on professional financial advice? Wealthy individuals understand the value of expertise and are willing to seek professional help when needed. They recognize their limitations and understand that financial planning requires specialized knowledge.
“We all have deficiencies in certain parts of our lives. Would I operate on myself if I needed to remove a tumor? No, I’m going to find a person that knows what they’re doing and do it that way. The same goes for what we do with seeking financial planning assistance.” – Bud Kasper
The Charles Schwab survey highlights a common misconception: many believe they don’t have enough money to warrant a financial plan or that creating one is too complex. Others cite a lack of time or a belief that professional help is too expensive. However, the reality is that a comprehensive financial plan, developed with the assistance of a skilled team, is invaluable regardless of your current net worth.
2.3.1. Building a Comprehensive Plan with a Team of Professionals
What benefits does a team of financial experts provide? At money-central.com, we believe that everyone deserves access to expert financial guidance. That’s why we offer resources and tools to help you build a comprehensive plan with the assistance of financial professionals, including CERTIFIED FINANCIAL PLANNER™ professionals, CPAs, estate planning attorneys, insurance specialists, and investment advisors.
“The people that don’t have plans—and a lot of people don’t have a plan—also don’t seek out professional help. They think they can do it on their own. The reality is that if somebody sat in my office or Bud’s office and had one of our CPAs in there and looked at what we did, they’d be blown away. There’s no way they have the capacity to do it on their own. And trust me, the amount that you pay will pale in comparison to the ultimate results that will come back to you.” – Dean Barber
2.4. Understanding Leverage: Debt and Insurance
How do wealthy people strategically use debt and insurance to their advantage? Wealthy individuals understand that leverage, in the form of strategic debt and insurance, can be a powerful tool for wealth creation. They recognize that not all debt is bad; the right kind of debt can fuel exponential growth.
“A perfect example of that is Malcolm Forbes. When Malcolm Forbes was in his 70s, he bought $70 million of life Insurance. Why would somebody at his age and with his wealth buy $70 million of life insurance. First, he said that he had more money than he was ever going to spend. There was no place he could put his money that was going to give his descendants a guaranteed tax-free return like life insurance. It was purchased in a life insurance trust, so it was tax-free and estate tax-free.” – Dean Barber
Similarly, they use insurance not just as a protective measure but as a way to create wealth for future generations. For example, purchasing life insurance within a life insurance trust can provide a tax-free inheritance for their heirs.
2.5. Charitable Giving: A Responsibility and a Strategy
Do wealthy people view charitable giving differently than others? Wealthy individuals often view charitable giving as a responsibility. They see it as a way to give back to the community and use their wealth for the greater good. While tax benefits may be a consideration, they are rarely the primary motivation.
“We’ve said a lot of things that the wealthy people do with their money that others don’t. And we’re not saying that other people don’t do some of these things. The thing is that the mindset of being wealthy shouldn’t be tied to a number. You can have the same type of habits that the wealthy people have.” – Dean Barber
This mindset of giving back fosters a sense of purpose and responsibility, aligning their financial success with meaningful contributions to society.
2.6. Communicating Plans: Family Meetings and Legacy
Why is open communication about financial plans crucial for wealthy families? Wealthy individuals prioritize open communication with their beneficiaries, holding family meetings to discuss their estate plans. While they may not disclose specific details about their finances, they emphasize the responsibilities that come with wealth.
“Wealthy people have family meetings. They talk to their kids about their estate. They may not go into details about how money is managed or exactly how much money is there, but they have family meetings to discuss the responsibility of having wealth.” – Dean Barber
These meetings, whether in-person or virtual, ensure that future generations understand the family’s values and are prepared to manage their inheritance responsibly, fostering long-term financial stability.
2.6.1. The Power of Family Meetings
How do family meetings contribute to financial clarity and unity? Family meetings provide a platform for open and honest conversations about financial matters. They allow families to clarify expectations, address concerns, and ensure that everyone is on the same page regarding the family’s financial future.
“It’s another reason that Zoom is such an effective way of communicating. There are clients who have children in different states, but still have family meetings that we sit in on. We generally have our client couple with us, but if not, that’s fine. They can be on Zoom and still go through an itinerary that they created for the benefit of the children to understand. Oftentimes, that clarity of what’s happening is beneficial to the overall family.” – Bud Kasper
Overcoming the reluctance to discuss money, these meetings foster transparency and unity, strengthening the family’s financial legacy.
3. Crafting Your Financial Plan: A Step-by-Step Guide
Is it possible to emulate the financial habits of the wealthy, regardless of your current income? Absolutely. Emulating the financial habits of the wealthy starts with creating a financial plan tailored to your unique goals and circumstances.
At money-central.com, our mission is to provide you with the tools and resources you need to achieve financial success. Our industry-leading financial planning tool, used by our CFP® professionals, is available to you at no cost or obligation.
To start building your plan, simply click the “Start Planning” button on our website. You’ll be guided through a series of questions to help you define your goals, assess your current financial situation, and create a roadmap for achieving your dreams.
In addition to our financial planning tool, we offer complimentary consultations with our CFP® professionals. During these sessions, you can ask any questions you have about retirement planning and gain valuable insights into how to optimize your financial strategy.
Remember, financial planning is not a one-size-fits-all approach. Your plan should be based on your individual goals, risk tolerance, and time horizon. By working with a team of financial professionals and utilizing the resources available at money-central.com, you can take control of your financial future and achieve the financial success you deserve.
Things the Wealthy Do with Their Money
3.1. Start Planning Today
Ready to take the first step towards financial independence? Visit money-central.com and click the “Start Planning” button to begin building your personalized financial plan. And don’t forget to schedule a complimentary consultation with one of our CFP® professionals to get expert guidance and support. Your financial future awaits!
4. Embracing the Mindset of Wealth: Practical Applications
Can anyone adopt the mindset and habits of the wealthy? The key to building wealth is not just about having a high income, but about adopting the right mindset and habits. By implementing the six strategies discussed, anyone can start building wealth, regardless of their current financial situation. It’s about making informed decisions, seeking expert advice, and planning for the future.
5. Money-Central.com: Your Partner in Financial Success
How can money-central.com help you achieve your financial goals? At money-central.com, we are committed to providing you with the knowledge, tools, and resources you need to achieve financial success. Our website offers a wealth of articles, guides, and calculators on topics ranging from budgeting and saving to investing and retirement planning.
We also offer access to a team of experienced financial professionals who can provide personalized advice and guidance. Whether you’re just starting out on your financial journey or are looking to take your wealth to the next level, money-central.com is here to help.
Visit our website today to explore our resources and start building your path to financial independence.
6. Call to Action: Take Control of Your Finances Today
Are you ready to take control of your financial future? Don’t wait another day to start implementing the strategies and habits of the wealthy. Visit money-central.com to access our financial planning tool, schedule a consultation with a CFP® professional, and explore our comprehensive resources.
Take the first step towards financial independence today and unlock your full financial potential.
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7. Frequently Asked Questions (FAQs)
7.1. What is the first step to take to manage money like a wealthy person?
The first step is to create a detailed budget to track income and expenses, identifying areas where you can save more effectively.
7.2. How important is tax planning in building wealth?
Tax planning is crucial as it helps minimize unnecessary taxes, allowing more money to be reinvested and grown.
7.3. Why do wealthy people hire financial professionals?
Wealthy individuals hire professionals because they recognize the complexity of financial planning and the value of expert advice in maximizing their financial outcomes.
7.4. How can debt be used as leverage?
Debt can be used strategically to acquire assets that appreciate over time, such as real estate or investments, which can increase overall wealth.
7.5. Is charitable giving only for the wealthy?
No, charitable giving is not exclusive to the wealthy. It’s a practice that individuals at any income level can adopt, providing both personal satisfaction and potential tax benefits.
7.6. What is the significance of family meetings for wealthy families?
Family meetings facilitate open communication about financial matters, ensuring that all family members understand the responsibilities and goals associated with managing wealth.
7.7. How does life insurance contribute to wealth management?
Life insurance can be a strategic tool to protect assets and provide a tax-free inheritance for future generations, particularly when held in a life insurance trust.
7.8. Can I start managing my money like a wealthy person even if I have debt?
Yes, you can start by prioritizing debt repayment while also implementing strategies for saving and investing, gradually shifting towards wealth-building habits.
7.9. What resources does money-central.com offer to help improve financial management?
money-central.com offers articles, guides, financial planning tools, and access to financial professionals to help individuals manage their finances effectively.
7.10. How often should I review my financial plan?
You should review your financial plan at least annually or whenever there are significant life changes, such as marriage, divorce, or a new job, to ensure it still aligns with your goals.
