Pattie Lovett-Reid: What the rich do differently than the rest of us
What do the rich do differently than the rest of us? Here’s a look at nine strategies that affluent individuals usually follow in order to build their wealth.
1. They don’t spend frivolously: The Toronto Raptors are playing in the NBA Finals for the first time ever, and game one tonight is going to be electric but expensive. Households are ruined financially one dollar at a time. Let’s say you paid $1,000 for a standing room only ticket. The experience is likely to be amazing, but you could use that $1,000 in better ways. Consider putting it towards an extra mortgage payment or even a couple of car payments. The rich know small amounts spent frivolously adds up.
2. They focus on asset accumulation: Payments that never end are a financial sinkhole. Music, movie, gym payments will compromise your ability to get ahead. Sadly you pay and pay and own nothing at the end of the day. The rich believe in asset accumulation.
3. They borrow to invest, not consume: Bank of Canada Governor Stephen Poloz has repeatedly stressed concerns about the debt levels of Canadians. Look closely at the debt you’re carrying and be honest – could you pay it off if you wanted to? Borrowing to invest is a legitimate investing strategy, but borrowing to simply consume is not something the rich subscribe to.
4. They’re realistic: There may be a rude awakening for Canadians who have used the equity built up in their homes as a never-ending piggy bank. However, with a number of five-year fixed term mortgages coming up for renewal next year, some households will face difficulties if rates march higher. Staying rich means not overextending yourself financially and being realistic about the financial landscape. You can’t necessarily time an interest-rate increase but you can develop a contingency plan.
5. They set up an emergency fund: It’s a smart idea to have three to six months of living expenses tucked away for a “what if” scenario. If you can’t save up, make sure you have access to credit that you don’t use unless you are absolutely desperate or an economic recession hits. During tough times the rich know a little financial flexibility will go a long way.
6. They don’t let cash sit idly: The rich invest in the markets or through other assets that are income-producing and don’t leave their money sitting idly in cash. Don’t forget that after taxes and inflation, you are actually losing money.
7. They’re flexible with their financial plan: Having a financial plan, reviewing the plan and tweaking the plan is essential to financial success. Set some time aside to discuss your financial situation. The rich always have a plan and recognize a plan is not carved in stone. Life has a way of throwing curve balls when you least expect it. However, you cannot make changes to your financial strategy when thrown off course if you don’t have a plan in place.
8. They’re looking for the next big thing: Those who have earned their wealth know it takes hard work, discipline and a little luck along the way. However, you know the saying, “Luck happens when preparation meets opportunity.” The rich are always looking for the next opportunity.
9. They want to leave a legacy: In many cases the rich want to leave a detailed financial legacy and will create a detailed estate plan.
Whether you’re just starting to save for the future, or approaching your retirement years, above all remember that you don’t need to be a millionaire to have a millionaire mentality.