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Thursday, April 28, 2011
8 Money Secrets of the Wealthy
What separates the rich from the rest
Think you could never earn enough to be wealthy? Think again. Financial experts say income alone explains just 5 percent of the wealth disparities in the United States. That’s why some of the lowest-earning households in terms of wages have managed to accumulate significant wealth.
So what do the wealthy know that the rest of us don’t? Plenty. But the good thing is, their secrets are far from rocket science. Most are common-sense money managing practices that rely on everything from simple laws of human nature to simple math we all learned in grammar school.
Here are eight secrets of the wealthy: They have spending plans, not budgets. Believe it or not, the wealthy also budget their money. But rather than an unrealistic detailed budget that lists every purchase, such as morning coffee, dry cleaners and gas, they employ a strategy of weekly or monthly spending plans or smart estimations. The wealthy know that budgets get blown, and spending plans don’t.
They understand the power of compounding. The wealthy almost always start saving and investing at a young age. By starting early in life, they usually are able to reach their savings goals without breaking a sweat. They let the magic of time and compounding interest do the heavy lifting for them.
They see beyond the obvious. Call them visionaries, but the wealthy see beyond what normal people see. And they usually have the ability to create something out of nothing. They are not like everybody else, and are not apt to copy what other people have done. Wealthy people are doers, not doubters. They know how to make things happen, and never think something is impossible.
They spend less money than they earn. The wealthy will underestimate their incomes and overestimate their expenses to create a favorable bottom line. They use their net worth as the ultimate scorecard to determine how well they are doing.
They borrow money as leverage. The wealthy are constantly looking to increase their assets and reduce their liabilities. They borrow money only as leverage to invest and help them make more money. In other words, they use debt and do not let debt use them.