5 Money Lessons From Millionaires
There's an aura of intrigue about people with money. Millionaires seem above and beyond the normal problems of electric bills, consumer debt, and budgeting. But are they really?
While the jet set lifestyle may conjure up images of chartered planes, multiple residences, and a lot of Hermes, the people who afford these luxuries work just as hard to keep their money as they (or a family member) did to earn it. "More money, more problems" sounds like a cliché, but more money at least equates to a lot more work to stay wealthy.
Being rich sounds like a cakewalk until you witness a simple monthly investment meeting turn into a three ring circus with no fewer than eight legal, tax, and financial advisors, all offering financial planning advice to the client. There are worse hardships, but it does make you think twice about just how millionaires hang on to their wealth through marriages, divorces, and last but not least, children. (See also: How to Build Wealth in a Depressed Economy)
In a past life, I worked closely with high net worth families and investors. (In investment terms, this translates to liquid assets in the eight-digit range and above.) True, millionaires have culinary-institute-sized kitchens, nice cars, and take amazing vacations. But when it comes to managing their money, millionaire tactics tend to contain a surprising amount of common sense and frugality versus impulse spending. Here are a few consistent tactics millionaires use to hang on to wealth for several generations (and in many cases, increase it).
The ultra-wealthy aren't out to just make double-digit returns or sitting on a pile of gold coins cackling and twiddling their hands. Multi-millionaire clients aim to preserve accumulated wealth while still earning a healthy rate of return. That means slow and steady growth versus trying to get rich quick. While risk can be a good thing, in financial terms it's best to avoid it. And if there's one thing worse than missing out on the next big thing, it's losing money.
Mind the Gap
Be realistic about budgeting and only buy what you can afford. If a hot private equity deal comes along but you're a few hundred thousand short from last month's trip to Biarritz, that's a gap in a millionaire's budget. On the non-millionaire side, maybe you inadvertently realize you've spent a grand total of $550 at Target in the past 30 days on things you don't recall actually needing. Big, big gap. Either way — don't buy what you can't afford. Don't make big purchases without planning ahead. Be proactive about expenses and keep track of how much you spend versus what you earn. Hey, even trust fund babies have a spending limit.
Have Cash on Hand
Billionaires and trust fund babies refer to this as "liquidity." The rest of us can refer to it as "make sure you don't end up living in a cardboard box." Even the most aggressive high net worth investors I've worked with kept a large chunk of liquid assets ("cash") on hand for emergencies. It seems like a no-brainer, but having an emergency fund is one lesson millionaires and the rest of us should always heed.
Avoid Fees...Even Small Ones
A client with a portfolio well past the multi-million dollar mark once remarked that despite the fact that $25 to him roughly equated to what a nickel is to me, small bank fees were the bane of his existence. As it turns out, bank fees annoy the heck out of millionaires just as much as those of us who sweat and toil for a living. Even if it's a nickel. (Good luck finding that on a bank fee sheet.) You work hard to earn a paycheck, so watch for fees like a hawk. If the charge seems exorbitant or isn't justified, ask politely for a reversal or reduction.
Consider the Source
There's no shortage of people willing to offer their opinions regarding personal finance. Millionaires and their sizable liquid assets tend to get a lot of unsolicited financial advice that they mostly meet with a polite smile or a curt nod. That's not to say information from these sources is necessarily bad, but take it with a grain of salt. News organizations often sensationalize the stock market and data to enhance ratings and entice viewers. Millionaires are cautious investors. They remain incredibly skeptical about anything that sounds too good to be true or claims not to carry any risk. Follow suit, so to speak, and compare financial products before jumping in.