4 Reasons Why You’re Not Rich
The amount of high-net-worth individuals with $1 million in investable assets increased by 1.76 million people in 2013, according to the Capgemini and RBC Wealth Management World Wealth Report. Do you ever wonder what the rich know about money that you don’t? Well, they know a whole lot and they’re working with trusted financial planners and advisers to help them keep tabs on their money.
You may have daydreams of rolling around in a pile of cash, but that dream won’t become a reality if you don’t make smart moves with your finances. A few financial planners agreed to chat with us and spill the beans, so sit back and take notes. Here are four ingredients in the recipe the wealthy use to get rich, stay rich, and build multi-generational wealth.
The wealthy seek alternative money management strategies
Those who are wealthy stay abreast of little-known ways to grow their money. When they invest, they look for alternatives that work best for them. One of these tools is private placement life insurance.
“In today’s rising tax environment, one of the most popular approaches to growing and protecting wealth among the ultra-wealthy is using a combination of private placement life insurance and annuity products. These products are typically designed to meet the unique needs of the ultra-affluent marketplace (more than $50 million in net worth) and they allow them to invest in hedge funds of their choice (as long as they’re on the insurance carrier’s platform) and avoid all income taxes. The savings can result in hundreds of thousands of dollars—sometimes even millions—in tax savings over the years as the assets are distributed and the wealth is transferred to future generations. This level of asset protection is key to protecting wealth among the ultra-wealthy,” says David Buckwald, CEO and senior partner at Atlas Advisory Group.
The wealthy understand the importance of diversification
Wealthy individuals make sure to spread out their investments. They don’t concentrate their wealth-building efforts in one place. This ensures that if one income stream starts to run dry, they’ll have several other sources to serve as a backup.
“The wealthy are aware that their finances and investments can be cyclical in nature. They most probably have been through a few of those cycles and have learned to weather them or ride them out…wealthy individuals don’t fall in love with one form of investing or investment vehicle. Rather, they make sure they do not keep all their eggs in one basket. And they constantly make sure that they are rebalancing along the way so they don’t inadvertently get out of balance. Sometimes the hardest thing is to know when to move on from something that is performing. The wealthy know to take their emotions out of investing,” says certified financial planner and attorney Joseph W. Malka.
The wealthy know how to preserve their cash
You might be surprised to learn that wealthy people who are smart with their money look for ways to save instead of spending cash recklessly. That is one of the ways they secure their wealth. While it’s true there are those who spend money like they’re going to die tomorrow, those who truly understand how money works know it’s about how much you can actually keep. There are plenty of stories of wealthy people living out of their vans (Toronto Blue Jays’ pitcher Daniel Norris) or buying a home way below their means (Warren Buffett).
“Living below your means is the best advice ever. If you need to finance your lifestyle through credit cards, you’ll always be in debt if you pay 15% in interest and only earn 8% on your investments,” says Laurie Itkin, financial adviser with Coastwise Capital Group and author of Every Woman Should Know Her Options: Invest Your Way to Financial Empowerment.
The wealthy have a plan for their money
It’s important to remember that you can’t just wish you were wealthy; wishing will get you nowhere. You need to have a plan so that you can move toward your financial goals. What do you want your money to do for you?
“The first thing I do with high-net-worth individuals is discover what they want their money to do for them and their family. Whether we are looking at $1 million or $100 million, it all starts that basic question. What we always discover is that it’s not about the money but rather what kind of impact the money will have on the people and causes they care about most… The most advanced wealth preservation strategies in the world are of little value if they don’t help a client reach their personal goals,” says Martin Hurlburt, registered investment adviser and founder of T.M. Wealth Management.
You don’t have to wait until tomorrow or next month to get on the road to wealth. One small step you can take today is saving your money. Even if it’s just $5 a day, every little bit counts.
Says Certified Financial Planner and Attorney Rebecca Walser, “…start early, pay yourself first in terms of investing in your future self instead of spending every cent you have on your present self, be diligent, and stay that course even through the rough times. One day you will wake up and realize that every seed you planted has bloomed into a very reapable harvest!”