What secrets about managing money do the rich know that the average person doesn’t? I spent five years trying to answer that question. I asked 233 millionaires 144 questions and discovered the rich have certain spending habits that helped them get rich:
1. Track Spending – Know where your money is going. Look at your bank statement and credit card statement every month. You’ll uncover certain expenses for things you are not even using, such as club memberships, subscriptions, automatic charges for services you’ve never used. Oftentimes these automated charges occur after you enroll in some “free” promotion, where the free part expires after a promotional period.
2. Periodically Audit Expenses – Many expenses can change over time. Insurance costs often change. They can go up or down over time. Make sure you are paying the lowest insurance rates for homeowners, auto and life insurance. Check your health insurance. You could be paying for dependents who left the nest, are on their own, and have coverage through their employer. Cable and Internet costs can increase without you being aware of it. Calling your cable or Internet provider to secure the lowest fees available should be an annual process. Periodically shop cell phone plans. Increased competition in the cell phone industry is driving down monthly rates. Make sure you are not paying more than you have to.
3. Purchase Good Quality Used Cars – New cars lose value as soon as they come off the lot. Buying good quality used cars allows you to take advantage of this loss in value anomaly prevalent in the auto industry. 44% of the rich in my study purchased good quality used cars. Typically these are cars coming off a lease. They may be two or three years old. At 125,000 miles most cars will require some annual repairs. Expect to incur about $1,500 a year in repair costs when you hold on to cars beyond this 125,000 mileage mark. That is still significantly less than you would spend on a loan or lease for a new car.
4. Use Coupons – Even the wealthy in my study engaged in this money savings habit. 30% of the rich used coupons to buy food. Why pay more than you have to on groceries or other expenses?
5. Shop at Goodwill Stores – Many goodwill stores carry high quality clothing. You may have to spend a few extra bucks on tailoring, but it is well worth the additional cost. Don’t let your ego get in the way.
6. Keep your housing costs below 30% of your monthly net pay. Contrary to what you’ve been led to believe, most of the rich do not live in mcmansions. Sixty-four percent of the rich in my study live in modest homes.
7. Bargain Shop – Far too many make spontaneous purchases, paying much more than they otherwise would. That’s a Poverty Habit. Shopping for bargains and taking advantage of sales events is a Rich Habit.
8. Stick to BYOBs – There are many restaurants that do not sell alcohol, beer or wine and allow you to bring your own spirit of choice into their restaurant. Restaurants markup liquor sales by as much as 100%.
9. Take Advantage of Credit Card Reward Dollars – Many credit cards have attached to them Rewards Programs. Typically, these Rewards Programs generate Reward Dollars that you can use at participating vendors. For example, the American Express Reward Program gives you about .88% back on every dollar you spend using an American Express credit card. One of the participating vendors with American Express is Barnes and Nobles. 50,000 American Express Rewards Dollars translates into $500 in Barnes and Noble gift cards. You can buy 25, $25 Barnes and Noble gift cards and give them out as gifts for birthdays, holidays, etc., and it will cost you nothing.
10. Interest-Free Financing – Sears, Home Depot, Lowes and many other retailers offer up to 24 months of interest free financing if you become a credit card customer. You must ensure that you pay off the interest free purchase within the free interest period and you must make your monthly payments on time. If you don’t you risk being back charged for ALL of the interest you were saving on the purchase.