It’s sure easy to mock the “one percent” and the “one percent of the one percent” these days. I mean, when they compare their plight to Jews in Nazi Germany and claim they’re rich simply because they work harder than the rest of us, what do they expect. It may be true that they work harder than the rest of us, but saying it outside of their head is just as moronic as those who claim life is hard because they’re beautiful.
The truth is many wealthy people become so through their own volition. Many did work hard and smart. Sam Zell is right that the rest of us would do ourselves a favor if we spend as much time emulating the “one percent” as we do bashing them. That is what we’re going to do here.
Wealthy people avoid errors many of us make every day. Because they know what to avoid they get even further ahead of the rest of us. This, in part, adds to the widening gap between the wealthy and the not-as-wealthy.
The good news is that we can learn from their success. By adopting some of their financial habits, we can put ourselves in a better financial position. By working smarter, we can make our money, whether we have a lot or a little, work harder for us.
Learn from these mistakes and don’t make them. Avoid these mistakes and get ahead. Below are the five money mistakes moneyed mortals don’t make.
1. Wealthy People Don’t Work
Wealthy people don’t work. Well, that’s not entirely true. They work, but they work differently, some may say smarter, than the rest of us. Wealthy people make their money work harder for them than they work for their money. They do this by investing their money. They are The Investing Class.
Yes, they live a nice life and can appreciate the finer things. They, however, put a good percentage of their incomes, earned and investment incomes, into investments that generate more money.
They don’t get mired in debt and spend a lifetime trying to climb out. They understand that it’s almost impossible to consistently get a higher rate of return on their investments than banks charge for carrying debt month-to-month. Therefore, they manage debt cautiously and wisely.
2. Wealthy People Don’t Pay Taxes
Uncle Sam won’t let anyone get away with paying no taxes. Wealthy people, however, reduce their taxable income as much as possible. They pay accountants and attorneys lots of money to avoid taxes.
Taxes are a drain on returns, such as earned and investment incomes. Options to consider reducing your taxable income include:
- Tax Efficient Investment Strategy: Choose tax efficient investments for your taxable accounts. Choose less tax efficient investments for tax sheltered accounts such as IRAs and 401(k)s.
- Sell Losers: Capital loses can offset capital gains. You can offset up to $3,000 annually of capital losses against your earned income and carry the losses forward year to year.
- Increase Retirement Account Contributions: Maximum contributions to 401(k), 403(b), SEP or Simple IRA accounts range from $17,500 to $44,000 annually. The more you contribute to these accounts, the less you pay in taxes.
- Increase Flexible Spending and Health Savings Account Contributions: Account rules vary from employer to employer, but maximum contributions range from $3,000 to $5,000 annually of pre-tax dollars. Just as with retirement account contributions, contributions to these accounts lower taxable incomes.
- Give: Charitable donations can be used to offset taxable incomes. They make your heart and your bank accounts feel warm and fuzzy inside.
3. Wealthy People Don’t Pay Fees
Wealthy people aren’t going to pay a lot for their muffler. The muffler represents everything.
Wealthy people don’t pay checking, savings and investment account fees. They don’t pay high annual operating expenses for mutual funds. They don’t carry balances on credit cards from month-to-month and pay an annual percentage rate to do so.
Find banks, credit unions and brokerage firms that won’t charge fees. Find low cost mutual funds and commissions for trading. The internet is a great resource for finding options such as these.
Don’t waste money on unnecessary expenses. If you don’t watch half of the stations in your cable package, downgrade. If you don’t use all your phone plan minutes, opt for fewer minutes. If you pay for a membership to a club or organization to which you don’t attend or from which you don’t get value, cancel it.
Always look for the discount. A friend told us this past weekend about a multi-million dollar client of his who exchanged all her Calphalon pots and pans at Calphalon’s home office because she wanted to upgrade. She could afford to buy new pots and pans, but Caphalon offers this service and this millionaire doesn’t miss an opportunity for a discount.
4. Wealthy People Don’t Miss Opportunities
Speaking of opportunities, wealthy people don’t miss them. Wealthy people often have numerous careers or versions of careers because they always take the opportunity to get ahead. Wealthy people have diversified investment portfolios and take risks when the opportunity warrants it. This includes investing in start-ups and starting many of their own businesses. When something isn’t moving forward, they move onto something new.
Always learn and grow. Be aware. Consider how to leverage what you learn to your maximum advantage. If you’re in a dead-end job or some other poor investment, move on from it.
5. Wealthy People Don’t Waste Time
Wealthy people know that time is money and money is time. They don’t waste it. They don’t waste their time on minutia and they know how to prioritize. If something is more efficiently done without their involvement, they delegate.
Dr. Stephen Covey used to say,”Focus with the end in mind.” If someone or something gets in the way of your progress, move them aside.
These are the mistakes wealthy people don’t make because their work is their passion. Their passion integrates every aspect of the lives. Earlier we jokingly said wealthy people don’t work. The truth is they do work, they often work all the time.
Wealthy people kill two or three birds with one stone. Their social life often includes attending charitable functions they strongly believe in and are tax right-offs from which they network for other investment opportunities that appeal to them. Exercise includes their favorite sport of golfing with buddies who may fund a project to which they’ve committed a lot resources or will let them in on a new investment deal that aligns with their drive.
All too often many of us, this includes yours truly, lose focus and find ourselves wasting the valuable commodity of time on things about which we hardly care. Our social life includes watching an average movie alone. We spend a half hour on the stair climber we hate reading about people we don’t care about in People Magazine.
Not making the mistakes wealthy people avoid are their habits we should all emulate.