6 Money Strategies Rich People Love
Being rich is a subjective matter that can mean different things to different people: being able to travel, being able to live comfortably or being able to grow savings, for instance. But generally speaking, not having to worry about financial matters and having financial freedom may be a significant differentiator.
Read More: It’s Never Too Late To Become Wealthy,’ According to Robert Kiyosaki
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Wealthy individuals — whether they got there through generational wealth or hard work — favor certain money strategies, which tend to not only maintain their wealth but also further boost their bank accounts.
Here are six strategies that pay off for rich people.
Diversification
Taylor Kovar, CFP, founder and CEO at 11 Financial, noted that wealthy individuals often use strategic investment strategies including diversification, asset allocation and long-term investing, as they understand the importance of spreading their investments across various asset classes to manage risk while seeking higher returns over time.
“For example, investing in a mix of stocks, bonds, real estate and alternative assets can help build wealth steadily over the years,” Kovar said.
Leveraging Debt
Another strategy the wealthy favor is using debt to their advantage.
“Rather than avoiding debt altogether, wealthy individuals leverage it strategically to grow their wealth,” Kovar said.
For instance, they may use low-interest loans to invest in income-producing assets such as real estate or business ventures, taking advantage of the potential for higher returns than the cost of borrowing.
“By using debt responsibly and focusing on investments with the potential for appreciation,” Kovar added, “they can multiply their wealth over time.”
Long-Term Investing
Another sign of affluence is the orientation toward long-term investing.
As Erika Kullberg, personal finance expert and founder of Erika.com, noted, examples are investment gurus such as Warren Buffett, who hold investments for extended periods, thereby taking advantage of compounding growth of the earnings and dividends.
“This approach is preferred because, over the long run, markets can be effectively navigated past sharp zigs and zags,” she said, “but at the same time, ample cash generation is ultimately generated.”
Philanthropic and Gifting Strategies
There are several of these that are commonly employed by wealthy individuals. For instance, Emily Irwin, head of advice relations for Wells Fargo, explained that you may provide a gift of $18,000 annually to as many relatives as you desire.
“Not only is this a conservative strategy, but it is also flexible in that you can give the full amount one year and nothing the next, if you like,” she said. “Also, neither the donor nor the donee has to report as taxable income for you to loan money to family up to $18,000 each.”
Another example is intra-family loans at an advantageous tax rate, she said, explaining that this tactic essentially allows you to act as a “bank” to your family.
As Kullberg said, philanthropy is another strategy that, beyond the social good, can offer financial benefits like tax deductions.
“Foundations set up by figures such as Bill Gates and Melinda French Gates illustrate how charitable giving can also serve as an effective tax planning tool,” she said.
Multiple Income Streams
Rich individuals often focus on creating various sources of income rather than depending on a single source. Multiple income streams can come from investments, rental properties, side businesses and even royalties, said Dane Habig, controller at Utopia Management.
“Take, for instance, Robert Kiyosaki, the author of ‘Rich Dad, Poor Dad,’ who abundantly stresses the importance of this approach in his book,” Habig said.
Estate Planning
Proper estate planning — which is a crucial part of building generational wealth and creating a legacy — is another critical strategy used by wealthy individuals.
“They often work with legal experts to minimize tax liabilities and ensure that their wealth is properly managed and distributed upon their passing,” Habig said.
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This article originally appeared on GOBankingRates.com: 6 Money Strategies Rich People Love
