How to Manage Your Money Like a Millionaire — When You Definitely Aren’t One
“Let me tell you about the very rich. They are different from you and me.”
— ”The Rich Boy,” by F. Scott Fitzgerald
It’s true: Wealthy people manage their money differently from the rest of us.
I’m talking about the truly wealthy, the well-heeled, the haves, the 1%. Compared to peasants like you and me, they have entirely different ways of making, spending and saving money. It feels like they have some secret knowledge that comes courtesy of their wealthy bloodlines.
Still, without owning their riches, you can follow their best financial practices.
How to Manage Your Money Like a Millionaire
Here are some ways you can manage your money like a millionaire — without spending like one.
1. Invest Automatically
Millionaires invest. Well-known billionaire and philanthropist Warren Buffett has popularized the “buy-and-hold” strategy that so many emulate. Followers of this strategy believe so strongly in investing that they do it as a matter of course. They do it for the long term, holding onto their investments for years.
“If they buy good companies, buy them over time, they’re going to do fine 10, 20, 30 years from now,” Buffett once told CNBC.
We asked financial adviser James M. Matthews for advice on how we peasants can impersonate Warren Buffett.
“Save early and often — and never stop,” said Matthews, managing director of Blueprint, a financial planning firm in Charlotte, North Carolina. “Many of those who are wealthy today started saving small amounts of money and kept saving throughout the ups and downs of their careers and lives.”
Penny Hoarder tip: Like Matthews said, what’s really important is to start investing — even if it’s only a little bit.
To jumpstart, you can literally automate your investing. Stash lets you start investing for as little as $5. You set up this app to pull a select sum of money from your bank account at regular intervals. It funnels that money into a set of simple portfolios reflecting your beliefs, interests and goals. Plus, The Penny Hoarder is teaming up with Stash to give you an extra $5 after your first investment.
2. Get Help
Millionaires get professional help. The rich have flying squadrons of financial planners, tax consultants and stockbrokers to work their voodoo and maximize their money for them.
“Outsource the things you’re not good at,” Matthews said. “Many successful people got that way by delegating the tasks to others for which they aren’t necessarily best suited, like handling their financial planning efforts. Delegating to a professional can help you stay on track and avoid making expensive mistakes while you tend to your busy life.”
Penny Hoarder tip: Well, we’re not millionaires, are we? There are no squadrons of financial experts at our beck and call. For a more affordable way of getting financial guidance, consider tapping into some free digital assistants:
- MoneyLion is an app that helps manage your personal finances. Based on your income and spending, it offers personalized advice to help you save money, reduce debt and improve your credit. It even rewards you for developing healthy financial habits. Earn points you can redeem for gift cards to your favorite retailers.
- Trim is a bot that will negotiate your cable or internet bills down for you. It works with Comcast, Time Warner, Charter and other major providers. You can sign up with Facebook or your email address. Share your most recent bill, and Trim gets to work.
- Empower is like having a personal financial assistant in your smartphone, and it has this cool “find free money” feature. It’ll do things like negotiate your cell phone bill, review your insurance coverage and cancel unwanted subscriptions.
- Charlie is a money-saving penguin — a digital financial assistant who lives in your SMS text messages or Facebook Messenger (your choice, though Charlie is more fun and reliable on Messenger). The bot helps you find free money by discovering where you’re overpaying for bills, cutting unused subscriptions and reminding you to save.
3. Take Advantage of Tax Laws
Millionaires use the system to their advantage. They make sound investment decisions that factor in tax implications. They also funnel money into tax-free or tax-deferred funds like IRAs, 401(k)s or college 529 plans.
Penny Hoarder tip: To take advantage of tax laws in your own life, make the most of your 401(k).
If your employer offers a 401(k) plan, contributing to it is a no-brainer. It reduces your taxable income, keeping more money in your pocket and out of Uncle Sam’s. And your employer’s 401(k) match is basically a raise.
However, studies show most of us pretty much ignore our 401(k) accounts after setting them up. You should actually make periodic adjustments as your retirement funds grow.
If you can’t afford a pricy financial adviser, we recommend checking out a robo-adviser called Blooom, an SEC-registered investment advisory firm that’ll optimize and monitor your 401(k) for you. It gives your account an initial checkup for free. After that, it’ll monitor your account for as low as $10 a month (Penny Hoarders get a special rate of $99 per year with the code REEETIRE.).
4. Invest in Real Estate (No, You Don’t Need Millions)
Millionaires own stuff. They diversify their portfolios. They invest in tangible assets like real estate that can produce income and grow in value over time.
A “tangible asset,” by the way, is just a thing you own that has a physical form. This covers everything from land to gold bullion to your cousin’s beat-up used Honda Accord.
Diversifying your assets is a way to hedge against risk, Matthews said, because the value of tangible goods is separate from the fluctuating value of the stock market.
The key is not putting all your eggs in one basket, Matthews said. Owning real estate has real benefits.
Penny Hoarder tip: You can get started investing in real estate with as little as $500. Through the Fundrise Starter Portfolio, your money gets invested in private real estate around the United States. The company does all the heavy lifting for you.
“Owning a diversified portfolio of things like stocks and bonds can include real estate as a diversification tool,” Matthews said. “Many wealthy people do own physical real estate for the purposes of income, future appreciation and tax benefits.”
5. Know Your Way Around Credit and Debt
Millionaires know how to use credit and debt to their advantage.
For instance, someone who’s accustomed to dealing with large sums of money might feel more comfortable getting a short-term personal loan to start their own business. Or more comfortable picking up a second mortgage to acquire some rental property.
Penny Hoarder tip: On a smaller scale, here’s one way you can use credit and debt strategically: Use a rewards credit card to buy things you’d have to buy anyway. Pay off the card’s balance each month. Earn cash back.
Here’s an option we like: It’s the Chase Freedom Unlimited card*. Its claim to fame? You’ll earn an unlimited 1.5% cash back on all your purchases. Plus, if you spend $500 in your first three months of opening the card (hi, groceries), you’ll pocket a $150 bonus.
6. Keep Your Eyes Peeled for a Good Deal
Millionaires can be surprisingly frugal. They’re not necessarily big spenders. They live below their means so they can save and invest the difference.
It’s like my father always used to tell me: How do you think they got rich in the first place?
To conduct research on the affluent, sociology professor Rachel Sherman interviewed 50 wealthy people who either worked in finance or had inherited millions.
“The people I talked with never bragged about the price of something because it was high,” Sherman wrote in the New York Times. “Instead, they enthusiastically recounted snagging bargains on baby strollers, buying clothes at Target and driving old cars. They critiqued other wealthy people’s expenditures.”
Penny Hoarder tip: To get the most from your money (and your non-millionaire salary), reach for a couple of our favorite tools:
It turns out deleting your emails could be costing you money. Intrigued?
Capital One Shopping Price Protection is a tool that gets you money back for your online purchases. It’s free to sign up, and once you do, it will scan your email for any receipts. If it discovers you’ve purchased something from one of its monitored retailers, it will track the item’s price and help you get a refund when there’s a price drop.
Plus, if your guaranteed shipment shows up late, Capital One Shopping Price Protection will help you get compensated.
Ebates is a cash-back shopping site where you can earn 1% to 25% on purchases you make from more than 2,500 online retailers through Ebates’ online shopping portal. Bonus: When you sign up and start shopping, you’ll get a free $10 Walmart gift card.
Capital One Shopping Price Protection compensates us when you sign up using the links we provide.
7. Crack a Book
Millionaires read, and not just for pleasure. They read to gain information.
And you’re doing this right now! Yaaay, you! You! You!
You! You! You!
(For the full effect here, imagine a crowd packed inside a sold-out arena, all of them chanting, “You! You! You! You!”)
Self-made millionaire Steve Siebold interviewed more than 1,200 of the world’s wealthiest people over three decades. He noticed they all had one thing in common: They self-educated by reading.
“Walk into a wealthy person’s home, and one of the first things you’ll see is an extensive library of books they’ve used to educate themselves on how to become more successful,” Siebold wrote in his book, “How Rich People Think.”
Penny Hoarder tip: Read The Penny Hoarder.
C’mon, we couldn’t resist plugging ourselves. You’re self-educating by reading at this very moment, just like a real rich person!
*The information for the Chase Freedom Unlimited card has been collected independently by The Penny Hoarder. Opinions expressed here are the author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. The Penny Hoarder is a partner of Credible.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He reads The Penny Hoarder.