When you step back from the hubbub of life and take an objective look at the behavior of actual rich people, you will be surprised to find that more often than not they are not following those same patterns as those who are outwardly rich but inwardly poor.
This list looks at ten aspects of the life of the typical millionaire that go against our preconceived notions of wealth. It serves as both a guide to understanding the rich, and a guide to copying them in the best possible way: the way that can lead to your own future wealth.
10. Buy Second Hand
Some things you can’t (or don’t want to) buy second hand: things like underwear, food, and bedding. But when it comes to everything else: rich folk are the first in line to get a bargain by buying second hand. Most significantly, rich people tend to not buy cars brand new (understanding the horrendous depreciation that occurs in the first few years of a new car) or if they do buy a new car, they tend to own it for at least ten years, ensuring they get the full value out of it.
Rich people love antiques (which are not always particularly expensive) and second hand furniture, but most importantly they love the value of buying second-hand. Every penny that is saved by buying and re-covering a second-hand sofa versus a brand new sofa can then be invested or saved for a purchase that helps secure your financial future.
9. Buy Affordable Property
Fundamentally, rich people pay cash for their homes or have at least a fifteen percent deposit. And rich people tend to buy properties no more than two-and-a-half times their annual after-tax income. Rich people also tend to buy older pre-war homes and it is very rare for the affluent to buy a brand new home or have a home built. This probably stems from the psychology of the rich in which a high value is placed on quality (which was undoubtedly higher in the past) and not wanting to carry the initial depreciation of new goods (see item 10).
It is not the truly affluent people buying McMansions and multi-million dollar show homes. Those properties are for people with massive mortgages, massive egos, and massive financial problems. And, of course, the few amongst us who have won the lottery (poor them—most lottery winners waste it all and end up back where they were but far more miserable for the loss).
8. Buy It For Life
False economy—the idea that buying cheap is always best. It is better to buy one pair of shoes for $100 that lasts five years, than five pairs of shoes that cost $20 but last one year each and require five trips to the store. But try telling that to most people! “Buy it for life” is a trend for some, but a lifestyle for the rich. Wealthy people will spend time investigating important purchases before they make them, to ensure that they are buying something that will last as long as possible and, ideally, retain some of its value.
This is why a rich man will buy a $1,000 suit—a price that seems exorbitant to most of us. But in the long term a suit in that price range will last for decades. And if the man (or his wife) is able to repair their own clothes, they can last a lifetime. When Prince Charles married Camilla Parker-Bowles, he wore a thirty year old suit with patches in it. But he still looked amazing (Prince Charles has the reputation amongst men’s clothing connoisseurs of being an extremely stylish man).
7. Wait For Good Deals
Human psychology is crazy (so to speak). In study after study, people who were offered $5 now, or $10 in two months chose to take the $5. We all seem to have something wired slightly wrong in our brains because clearly the $10 offer is the best choice (barring such things as an immediate need for money).
Rich people aren’t plagued with this problem. The wealthy will wait months (and sometimes even years) to get the really best value they can for something. That is how the wealthy survive such disasters as the 2008 property crash. The people who were hurt most in that crash were the people who had bought houses they couldn’t afford or used free money from the bank to build up a property portfolio in a get-rich-quick pipe dream.
6. Don’t Retire
You can’t get rich quick. Rich people spend their lifetimes building up their wealth, by scrimping and saving, and following the other patterns described in this list. However, there is more of an incentive to not retire when you’re rich: most wealthy men own their own business (small or large), and when you are self-employed you are far more motivated to keep working because you tend to be passionate about a business you own.
This is compounded by the fact that the affluent tend to like to keep busy, and retirement can be a dreadful bore for a person like that. And let’s face it: the whole concept of retirement is really a modern adjunct to the 9-5 working lives we are all “educated” to strive for. By looking forward to retiring we can take some comfort in the drudgery of our daily toil for the financial benefit of others.
5. Be Frugal
Frugality is not just financially sound, it is environmentally sound! When a person is extremely frugal they tend to waste less. My grandmother kept every piece of string from every parcel she received, and every bag from shopping. She didn’t do it because she was a crazed hoarder, she did it because she knew she would eventually have a use for those things and when that time came, she wouldn’t need to buy them.
Being frugal can be hugely enjoyable and the amount of money you can save just by being a little cautious with each expenditure can be astronomical. It is not for no good reason that the old adage arose: “a penny saved is a penny earned”.
Fun Fact: The somewhat trite proverb “A penny saved is a penny earned” was first recorded in 1633 in George Herbert’s Outlandish Proverbs as “A penny spar’d is twice got.” Less poetic perhaps, but certainly more to the point!
4. Use Coupons
In the book The Millionaire Next Door: The Surprising Secrets Of America’s Wealthy (which I can’t recommend enough), a number of millionaires were studied to determine their habits. Almost all of the men surveyed stated that they spent more time clipping coupons than they did shopping. It was a very common feature of the rich that at least one of the partners in the relationship was extremely mindful of overspending.
We may not all get to feature on the reality program Extreme Couponing, but we can definitely do our bit to get the best price for the things we actually need. Note how I said: “actually need”? A key difference between the rich and the stars of the reality TV show, is that the rich use coupons for things they typically need or buy for their family, while the extreme couponers are chasing savings whether they need a thing or not (which, in case it isn’t obvious, is not saving at all). Couponing is a great habit of the rich; extreme couponing . . . the mentally unstable!
All rich people keep a budget. And all rich people stick to it. Keeping a budget is essential, particularly these days as prices seem to be rising faster than the central bankers can print new money to enrich themselves and their friends! The most important part of a budget is honesty: you must be honest with yourself up front and make sure you factor in every dime and dollar you spend.
Rich people will pore over their budget for hours, much like the old nursery rhyme King counting all his money in his counting house. This is necessary to ensure that diversions from the budget are accounted for. You could almost say that there is a correlation between how much time you spend on your budget and how wealthy you will get!
2. Invest In Tangibles
Once the rich become dollar rich, they also do something that most of us (including the new rich) don’t do: they invest a portion of their money in tangible goods that enrich their lives in more than just monetary ways. They will buy art (because they love the painting), they will buy fine wine (because they love to drink it), they will buy bullion, and they will buy antiques. Obviously there is a financial benefit to owning those things as they will often increase in value over time, but they have one other characteristic that is perhaps the most important: they are hard to sell.
When you have $1,000 in cash sitting in front of you, it is very easy to spend it on a whim. Not so when your $1,000 is tied up in a bottle of Châteauneuf-du-Pape! The need to sell your goods to free up the cash gives you the time needed to make a more reasoned decision on whether you really want the $1,000 trinket you are lusting for.
1. Don’t Look Rich
Far and away the most significant aspect of the lives of the truly wealthy, is that no one can tell they are rich. They are the regular folk living next door, driving an old car, and working as many hours as you are.
On the other hand, the guy up the road with the luxury lifestyle that everyone wants to emulate is probably cash poor and miserable. And don’t forget, while you are busy trying to keep up with the Joneses, the Joneses are busy trying to keep up with the Smiths.
Break the cycle today! Start focussing on the best parts of your life—the parts of your life that make living worth while. But most importantly, follow your passion. At the end of the path down which your passion takes you is the true pot of gold: happiness.