Michael S. Schwartz, CFP®, AEP®
I apply a multidisciplinary approach to wealth management dovetailed with structured tax planning.
Most of us have worked hard and saved carefully to accumulate the assets we have. Similarly, many of the wealthiest people in the world achieved their status through effort and long hours. Amassing a fortune is one part of the equation — keeping and growing it is another. That’s a goal all of us have in common, no matter what our tax bracket.
The very wealthy do have access to some resources that others don’t, but many have also acquired smart habits that help them guard and build their fortunes. These habits can be adopted by anyone who wants to better secure their own nest egg (and who among us doesn’t?).
So, what smart practices do the wealthy routinely follow? Below, 16 Forbes Finance Council members share the frugal and growth-oriented habits of wealthy people that anyone would be wise to copy.
1. Becoming Very Mindful Of Spending
Our most wealthy clients are very mindful of how they spend money. While it is said that money doesn’t buy happiness, we believe that sometimes, it actually does. When we spend money on experiences with family and friends, the returns are significant contributors to our personal well-being. Conversely, spending money on “shiny things” brings a high that often dissipates quickly. – Sharon Olson, Olson Wealth Group LLC
2. Fostering An Abundance Mindset
All investors should emulate the charitable mindset that often defines the wealthy. Are they giving from abundance? Or did that mindset enable them to be wealthy in the first place? The abundance mindset is critical to a proper relationship with risk and money itself. If we work too hard at protecting it, returns will collapse and losses will mount. – Gil Baumgarten, Segment Wealth Management
3. Investing In Real Estate And Land
In addition to investments that earn a return in financial markets, wealthy people also tend to diversify their portfolios by investing in real estate and land. These decisions result in wealth-generating assets that provide a hedge against the ups and downs of the stock market. – Brad Johnson, Cobb County School District
4. Carefully Monitoring The Tax Code
Wealthy people plan around the income tax code. They vet out new tax laws to see how best to structure their finances so that they pay the least amount of tax while following the law. Tax planning can have a significant impact on one’s finances — it will determine how much you pay in tax and how much you get to keep to invest in more assets to generate more income. – Karla Dennis, Karla Dennis and Associates Inc.
5. Consistently Saving And Planning
A disciplined approach to core financial practices and behaviors is the common denominator we see among our high-net-worth clients. They commit early on to saving and investing for the long haul, spend decades adhering to their financial plans and work closely with their financial advisors to pursue their goals. The key is consistency and planning, pure and simple. – Mark Steffe, First Command
6. Being Disciplined About Budgeting
When it comes to financial management, a disciplined mindset is critical. Wealthy people adhere to the 50/30/20 budget rule: Spend 50% on needs and 30% on wants, and put 20% toward savings. Many also have a financial planner to provide education and investment strategies to build a financial portfolio that achieves short- and long-term goals. Saving, investing and living aren’t sprints — they’re marathons. – Greg Mitchell, First Tech Federal Credit Union
7. Autopaying Bills And Investments
Use autopay features for bills and investment accounts. Set up a standard amount each month that gets invested automatically. This accomplishes two things. First, it only really hurts when you have to write the check. Second, it will force you to use dollar-cost averaging in your investments, which will help you lower your cost basis over time. – Bradley W Smith, Rescue One Financial
8. Selectively Choosing Opportunities
The rich are very risk-averse and diligent. They care about detail, and they’re patient. They might have made money by taking risks, but the only way they keep the wealth is by being very selective about the ventures or opportunities they back or invest in. – Jason Hamilton, First River Capital
9. Paying Yourself First
Most wealthy people “pay themselves first” no matter what. Whether it’s 10% or 20% of their income, they ensure the first check they write is to themselves. Then, they systematically invest in different asset classes to make sure their money starts to work for them. – Matthew Meehan, Shield Advisory Group
10. Building A Financial Team
Most wealthy people save 20% of their income each year. They set goals that are meaningful but also attainable. They also build a robust financial team around them, which contains the following professionals: a tax accountant, a wealth manager or financial planner, a tax attorney, an insurance broker, a life and property and casualty broker, a real estate broker, and a mortgage banker. – Michael S. Schwartz, Magnus Financial Group LLC
11. Closely Tracking Interest Rates
Make interest work for you, not against you. Affluent people know that the cost of money is measured by interest rates. Consumer credit can be easy to obtain, but it’s very costly in the long run. Using credit for depreciating assets is not a good idea. Using credit for appreciating assets, such as real estate, usually makes sense. But it’s the interest rate that you need to examine closely. – Todd Sixt, Strait & Sound Wealth Management LLC
12. Practicing Frugality
Believe it or not, many wealthy people practice frugality as a principal financial habit. This virtue helps them save and invest a much larger percentage of their incomes, which in turn helps them become and remain financially independent. – Amir Eyal, Mylestone Plans LLC
13. Making Your Money Work For You
Not all wealthy people have a personal or family history of always having had money, but one of the things that they do all tend to have in common is their knowledge of how to make their money work for them — and doing so with the least amount of effort possible. They create passive income sources, contribute to matched employer benefits and avoid debt unless there are good uses for the funds. – Michelle Prohaska, NYMBUS
14. Refinancing And/Or Shortening Mortgages When Possible
Watch the market and create enough of a buffer to be able to take advantage of special interest rates. When the market takes a dip, check to see if you are able to refinance a mortgage to reduce your interest expenses. If you have the opportunity and the funds, reduce the length of the mortgage. This will create significant savings in interest. – Kelly Shores, GCubed, Inc.
15. Using Debt Properly
Wealthy people understand that debt is an instrument to create leverage. They borrow money at a lower interest rate to invest in assets that have the potential for a greater return. Likewise, wealthy people use debt to purchase assets that can grow in value — not for those that depreciate. Most people would be better off following a similar path. – Justin Goodbread, Heritage Investors
16. Educating Yourself On Financial Matters
Wealthy investors take control of their money. Instead of blindly taking financial advice, they educate themselves. They spend as much time focused on earning money as they do on protecting and growing it. Regarding investing, Warren Buffett famously said, “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.” The key is education — don’t just rely on others to make decisions for you. – Ben Fraser, Aspen Funds