9 Habits of Wealthy People

1. While in their working years, they practice reverse budgeting. Saving first every month, and spending only after the saving is tackled. Per the Federal Reserve in 2020, around 37% of Americans could not afford an unexpected expense of $1,000. So 37% of people are going to be taking cold showers for a long time if their water heater blows up. Think about that. Wealthy people set aside savings monthly, and that high savings rate is the best protection against financial uncertainty.

2. They know what makes them happy, regardless of whether or not society & pop culture are impressed with what makes them happy. They don’t care if what makes them happy is Instagram-worthy. The super power here is no money gets wasted in keeping-up-with-The-Joneses. It is spent efficiently on the items & experiences which make the person’s life better, and nothing else. Classic “Millionaire Next Door” behavior.

3. They focus on buying & owning businesses. We have a client who owns a large active ranch in the panhandle of Texas, and he always says “big hat, no cattle” when referring to someone who makes a lot of money working…….but owns very little. When you buy a stock, you are an owner in a business. And of course, many people also own & run their own small businesses as well. For example a retail flower shop, a plumbing company, rental properties (which MUST be run like a business to be profitable), etc. Owners tend to have cattle, and more wealth.

4. They are smart enough to know that there isn’t enough time or brain power to know everything, so they are great delegators. They set aside their ego, and spend money to make money, by relying on professionals. Attorneys, tax strategists, financial planners, real estate experts, etc. The great ones in these professions more than pay for themselves every year.

5. They use good debt to leverage the growth of their net worth, and steer clear of bad debt such as credit cards. Personally, this one was hard for me to mature into over the years. When I was younger, I always defaulted to “if possible, no debt”. But I learned that there are times in life when the wealthy know that a smart calculated risk needs to be taken (real estate purchase, business purchase, etc.), and often the only way to make it happen is by using good debt to get the deal done.

6. They hardly ever sell large chunks of their investments. They know the magical power of compounding only happens over time. Too many people sell their investments when they are fearful, which brutally decimates their rates of return. As Nick Murray is fond of saying, a portfolio is like a tree. You plant it, and the wonderful forces of nature enable it to grow over time. You don’t dig it up every week to check on its progress. You only harm the tree by doing that. You don’t uproot the tree and store it in your garage over the winter, to protect it from what you regard as ‘bad weather’. Though its leaves fall and it stops growing for a season, the tree itself does not die. And even leafless, it still produces oxygen, without which you could not live. Give the tree enough room, enough light, and enough time. Then leave it pretty much alone. It will give you back air and shade and beauty as it grows – and will go on doing so for your children after you’re gone.

7. When the economy & markets go through a down cycle, they opportunistically buy more. They buy businesses, stocks, real estate while they are on sale……..and while everyone else is panic selling. This is Warren Buffett 101 stuff here. “Buy when there is blood in the streets”. Easy to talk about, but very hard to execute in the heat of the moment. But wow, has it paid off exponentially for the wealthy.

8. They consume very little mainstream media. Why? Because they know it is not useful for decision making, and is at best tabloid-level entertainment. We have a client in New Orleans who is fond of saying “If we had had 24 hour news in 1941, we would have surrendered to Japan the day after Pearl Harbor.”

9. They give back. Wealthy people tend to understand their fortunate circumstances, and have causes they believe in deeply. They charitably donate their time and money to specific organizations which reflect their values. Many of our wealthiest clients have told us they started giving back with no expectation other than the feeling of goodwill. Only to find that their wealth grew even more quickly shortly thereafter, creating a positive feedback loop of wealth creation = even more giving. The ancient Sanskrit word “karma” comes to mind.

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