One of the biggest myths about rich people is that they know some ultra-classified money management secrets that let them make millions of dollars each year. It should go without saying that a lot of people on the Internet claim to have unearthed these secrets and will gladly reveal them for a modest fee.
The truth is that rich people do know some things about money that the rest of us don’t. The biggest things they know about money is how to make it work for them. In other words, they know how to invest effectively.
What else do they know that we don’t? Read on to find out.
According to many financial advisors, the most important attribute you need to make money is the ability to delay gratification. Rich people invest in long-term goals rather than focusing on short-term wants and needs.
One of the most important ways rich people delay gratification is to put money into savings first, rather than spend their money on something they want. For instance, if you can put $50 each paycheck into a savings account instead of spending it, most people would be able to save $100 a month. That comes to $1,200 a year that you can invest in your future.
Delaying gratification also comes into play when making luxury purchases. We all know rich people buy luxury items like sports cars or swimming pools, but they wait until they have the cash saved instead of buying on credit.
While you may need to take out a loan to get some items, like a house, try to pay for other items all at once instead of putting them on a credit card. If you know a big event is coming, like Christmas or buying a new car, make a plan to put aside money throughout the year instead of charging it all.
When you picture the ultra-wealthy investing, do you see them as risking millions of dollars on startups or making huge bets on the next earnings statement from Tesla? If you do, you might want to consider making some changes to your Netflix viewing habits.
The truth is that most millionaires focus on avoiding risk more than they focus on making money. Master investor Warren Buffet famously has only two rules of investing:
- Don’t lose money.
- Don’t forget Rule number one.
To that end, most rich people choose to invest in safe mutual funds, such as index funds, and stocks that show a slow but steady rate of growth. A number of wealthy people also invest in treasury bonds.
Make Long Term Investments
In addition to being conservative, rich people also invest with an eye towards long-term profits. They don’t look at the hot stocks that are scheduled to skyrocket “any day now.” Instead, they favor buying an investment and holding onto it for years.
This advice is followed by none other than Warren Buffet himself, who claims that “the money is made in investments…by owning good companies for long periods of time. If they buy good companies, buy them over time, they’re going to do fine 10, 20, 20 years from now.”
Rich people know never to put their financial eggs in one basket. They keep their investments in several different vehicles to weather any financial storms, like the 2008 recession.
Fortunately, a lot of financial institutions are more than happy to help you out with this. Many company 401(k) programs will invest your money in a handful of companies that fit the investment style you select.
If you really want to diversify your portfolio, though, look outside the stock market. Consider investing in an index fund that follows the stock market’s success. You’ll also want to look at treasury bonds. They don’t have a return rate as high as some mutual funds, but they have the advantage of being all but guaranteed to pay out.
Another good diversification option for investing is a certificate of deposit, or CD. Not only do they offer a higher rate of interest than a savings account, but you can create CDs with short-term and long-term end points, depending on your financial goals.
Invest with First Alliance Credit Union
Rich people have a different relationship with money than other people. They invest with an eye on slow and steady growth, and they’re willing to delay short-term pleasures in order to achieve long-term goals.
If you want some help achieving your long-term financial goals, contact First Alliance Credit Union. Our expert team of advisors can help you find the best financial vehicles that will get your money working for you.