The poor and the middle-class are forced to spend money on certain things. They simply don’t have much of a choice.
In my Rich Habits research I found that the wealthy have more freedom of a choice – they’re not locked in on certain spending, like those in the middle-class.
The Rich Don’t Spend Their Money on Cheap Products
Poor and middle-class families have limited budgets. This forces them to purchase inexpensive products that often need to be replaced in a few years, due to limited quality.
Conversely, the rich can afford to purchase the best quality products, that can last an entire lifetime. For example, one of the self-made millionaires in my Study refused to buy inexpensive golf cloths. Although this millionaire did not buy many golf clothes over the years, any purchases he did make were expensive and of the highest quality. He told me that he has been wearing the same golf clothes for over twenty years.
The Rich Don’t Spend Their Money on Cheap Services
Like inexpensive products, the poor and middle-class often do not have a choice but to seek out the lowest price in paying for certain services.
The rich, however, refuse to use cheap service providers, as they understand you get what you pay for, when it comes to quality service. Poor workmanship doesn’t last and may actually have to be repaired or fixed by someone else.
An example of this refusal to settle for inexpensive services can be found in the tax preparation business. The poor and middle-class will either prepare their own tax returns or find an inexpensive tax preparation service. Out of necessity, it’s a transactional purchase, with little to no tax planning involved.
Some of the millionaires in my Study also happened to be clients of my CPA firm. Many of these millionaires spend thousands of dollars a year working with our firm in an effort to significantly reduce how much they pay in income tax each year.
The Rich Don’t Have to Buy Life Insurance
The primary purpose of life insurance is to replace income that is lost due to the unexpected death of a spouse.
If the poor have life insurance, it is typically a nominal amount of term life insurance, provided to them through their employer’s group plan.
Families in the middle-class often have both employer-provided life insurance and separate policies that are generally ten times each family earner’s annual compensation. This ensures that the spouse and children will be able to financially survive the loss of an income-earning parent.
When you’re wealthy, you do not need life insurance to replace your income. The wealthy have investments that provide significant passive income, which they use to maintain their standard of living. If the wealthy do have life insurance, it is typically held by an Irrevocable Life Insurance Trust (ILIT). The purpose of an ILIT is to provide liquidity for their estate, which buys the estate time to liquidate the hard assets, such as real estate holdings or an existing business
The Rich Don’t Have to Buy Cheap Food
The rich don’t make a habit of buying cheap, inexpensive food. They have the means to buy expensive, healthy, often organic, high-quality food. If they go out to dinner with their wealthy friends, they frequent expensive restaurants, knowing the food will be delicious because it’s prepared by expert chefs, who only use the finest ingredients.
The Rich Don’t Spend Their Money on Lottery Tickets & Gambling
The poor and middle-class buy lottery tickets or gamble because they hope to hit the jackpot and become rich. So, this is a common extra cost of the poor and middle-class.
The rich don’t need to buy lottery tickets or gamble in order to create a life of their dreams – they’re already living that life.
One of the wealthy in my study, who did gamble, would travel once a month to Atlantic City, with their spouse to gamble. He capped how much he was allowed to lose at the craps table at $500 each month. He gambled for the fun of it, not to hit the jackpot. The $500 a month cap was reasonable, if his mind, given the fact that he had accumulated about $7 million in wealth over the years, which provided him with about $330K a year in income.
The Rich Don’t Pay Credit Card Interest or Fees
The rich never pay credit card interest because they don’t carry balances on their credit cards. And if they are charged a late fee they will make the credit card company waive the fee or take their business elsewhere.
The credit card companies always waive the fees for the rich.
The Rich Don’t Buy Extended Car Warranties
Many in the middle-class buy extended car warranties, the cost of which is an insurance cost that increases their monthly car payment. They do this because they know they would struggle to cover any expensive repairs required on their cars.
The rich can afford expensive repair costs and avoid this unnecessary insurance cost.
Tom Corley is an accountant, financial planner and author of “Rich Kids: How to Raise Our Children to Be Happy and Successful in Life”, “Effort-Less Wealth”, “Change Your Habits Change Your Life”, “Rich Habits Poor Habits” and “Rich Habits: The Daily Success Habits of Wealthy Individuals.”
