10 Ways to Manage Your Finances Like the Wealthy

School of Financial Wellness

Managing your finances like the wealthy

We’ve heard tycoons state that their first million was the hardest to accumulate on many different occasions, but why is that the case? The simplest answer we’ve all heard is “it takes money to make money”, and with that we agree. But are there any shortcuts we can take to accumulate wealth faster?

At Meld Financial, we assist the wealthy with managing their finances on a daily basis, and we’ve identified some common strategies that the wealthy use to accumulate and maintain their riches. Here are 10 things the wealthy are doing to make sure they stay rich:

1.  Utilizing Automatic Savings and Investing

As we mentioned earlier, it’s easier to make money when you already have money to invest. Investing, in many cases, allows the owners of wealth to grow their savings without using their most valuable resource – their time. So, if you can make money without investing your time, it stands to reason that you are well ahead of the game. But, how do you first accumulate the wealth needed to invest?

The simplest answer is: by saving and saving aggressively. We’ve found that most wealthy people have implemented automatic savings and investing plans to ensure they are always adding to their nest egg. When these plans automatically invest funds before they reach your hands, such as with a payroll deduction, the results are even better. By investing their money automatically, they are reducing the likelihood that they will accidentally overspend. This is the by far the simplest method you can implement to help ensure you are growing your net worth on a consistent basis.

2.  Smart Budgeting – Avoiding Impulse Buying

The accumulation of wealth can be simplified to a single formula: money earned – money spent = wealth accumulated.

So, it stands to reason that you can’t accumulate wealth if you are spending faster than you are earning. This seems pretty obvious, but sometimes people don’t identify their overspending until it is too late. The thought of implementing a budget strikes fear in the heart of some, but budgets are a critical step if you are trying to grow your wealth.

The fact is, the wealthy develop a budget and they stick to it. Their budget is designed to ensure that their wealth is always growing and that they are prepared for what life throws at them.

Just like in business or sports, it’s difficult to have success on a consistent basis without formulating a plan and sticking to it. The same is true with your finances. But, how do you develop a smart budget? The first step is seeking the assistance of a CERITFIED FINANCIAL PLANER™.

3.  Seeking the Assistance of a CFP®

Developing a comprehensive financial plan requires knowledge of budgeting, investing, saving, taxes and a multitude of other things. If every person were required to gain all this knowledge in order to manage their finances, we’d spend most of our time at the Meld University website, trying to understand the ins and outs of personal finance.

Most of us don’t have time to learn about and stay abreast of the multitude of changes in all these different fields. That’s why the advice of a CFP® is invaluable for those trying to grow their wealth. A CFP® can guide you through the process of developing a budget and organizing your finances so that you can begin planning for your long-term savings goals.

4.  Following a Long-Term Financial Plan

After developing a budget and ensuring that you are saving more than you are spending, it makes sense to take your plan a step further and look deep into the future. You may not have developed your long-term financial goals or you may need help understanding what is possible with your current wealth and income. But don’t worry, your CFP can assist you in this process.

Once you’re on track in the short term, you can develop a plan to account for future goals or expenses like retirement, college savings, vacation or a home purchase. The fact is, if you have a strong financial plan your odds of succeeding in your long-term financial goals will be much higher.

5.  Scrutinizing Their Expenses

One of the biggest mistakes that you can make is not reviewing your spending. Much like meditating on your day or reviewing the mistakes you made in a business negotiation, reflecting on your spending is critical to correcting past mistakes. It’s often difficult to take back an impulsive purchase or get your money out of a bad investment. So, the best way to make sure you don’t make the same mistakes twice is to periodically review and evaluate your spending habits.

We’ve found that the wealthy often micro-manage their spending. They review their spending on a monthly, weekly, and sometimes even a daily level. They realize that with the power of compounding interest rates, one dumb splurge in your thirties could results in thousands or even millions of lost wealth in the future.

So, think long and hard about every purchase you make. Be sure the purchase fits into your budget and into your long-term financial plan. Manage your monthly, weekly and even daily spending to fit your long-term goals. When you are reviewing your budget, make notes of past purchases that don’t perfectly line up with your plan and speak to your family about curtailing those purchases.

Having said all that, what is the point of being wealthy if you can’t enjoy it? So, we recommend creating a reward system for yourself. Set goals, and when you meet them, reward yourself. Be sure your reward doesn’t blow your budget or spend money you need for the future. It’s no fun to be rich if you can’t have nice things, but be sure to reward yourself wisely.

6.  Maintaining an Emergency Fund

An emergency fund is often the first savings goal for those starting out on their path to growing wealth. It’s critical for many reasons. The most important being protecting you and your family in case of an unexpected event, whether that be job loss, a natural disaster or some other unforeseen circumstance.

An emergency fund typically consists of enough funds to cover 6 to 12 months of your fixed expenses. Again, a CFP® can help you determine your fixed expenses and how much you need to be safe. Having this fund in place can help make sure you don’t have to take on debt to fund an emergency.

One big mistake that amateur savers make is tapping into the emergency fund for non-emergencies. It’s very tempting to spend money when it’s available, and your emergency fund should be kept liquid, in case you need it. So, the temptation to pull from this fund for day to day necessities is there. But, you must resist. The emergency fund should be reserved for just that, an emergency.

7.  Living Below Their Means

This goes back to a point we made in #2, money earned – money spent = wealth accumulated. Wealthy people who live below their means, the most famous example being Warren Buffet of Berkshire Hathaway, tend to grow their wealth at a much faster rate than those who try to “keep up with the Joneses”. Mr. Buffet is frequently present on lists of the richest people in the world, and that is partially due to his frugal lifestyle.

On the other hand, we’re regularly hearing stories of lottery winners who somehow go broke. This is most often a symptom of poor expense management (see #5 above) and living above one’s means.

Another great example where excessive spending caused a great deal of pain was the housing crisis in the U.S. that materialized late last decade. Many people had purchased homes priced far in excess of what their income could support, partly due to lax lending requirements. Those people who were smart and purchased homes that were well within their means were in a far better place when the market crashed.

8.  Making Short-Term Sacrifices to Attain Larger Goals

We’ve found that in order to become wealthy, we usually need to make sacrifices. Those sacrifices can come in many forms. Whether it be something as small as price shopping a routine purchase or opting for drip coffee over the $7 fancy latte, short-term sacrifices are often the building blocks of long-term savings.

For example, let’s say you are in the market for a new car. Your current vehicle may be in decent shape, but it’s missing the features of the newer models. You may take the time to shop several models, dealerships or even decide to take your search online. Those are great ways to make sure you are getting the best deal on your next car purchase.

But, what if you decided to wait? I’m sure you’ve seen a wealthy person driving and old or less than modern car and thought to yourself, “if they’re so rich, why are they driving that old car?”. The answer is simple, to save more money.

If you could get just 1 more year out of your old car without any significant investment, would that be a benefit? You bet it would. It’s small day to day sacrifices like these than can make the difference in growing your nest egg and watching it dwindle away.

9.  Avoiding Debt and Managing Credit Card Balances

This is a big one. One of the fastest ways to burn through your wealth is to overspend your means (see #7), and credit cards are one of the biggest enablers of this behavior. Having access to credit card accounts for emergencies or even using them wisely to earn points on purchases you already make can be very beneficial for responsible people. But it doesn’t take long to get into trouble.

We can’t stress this point enough: Don’t spend money you don’t have! The first and most obvious issue with accumulating debt is the interest you will pay. For credit cards, this issue is exacerbated by often insanely high interest rates and ever-changing minimum payments. Secondly, you are literally mortgaging your future wealth to obtain something now. Why not save for such a purchase? By saving to make a purchase, you flip the interest paradigm. Rather than paying interest to the bank, you are earning interest on your savings. Nothing makes more sense to us.

Now, if you’re the type of person who uses their credit card to accumulate points or cashback and pays that balance in full every month, congratulations! But, if you carry a balance from month to month and often see your balances skyrocket to amounts you could never pay in a single billing cycle, you are playing with fire. Being smart with debt and keeping it to a minimum is one of the most common characteristics we see among the wealthy. And, it is a characteristic that you should adopt immediately.

10. Utilizing Educational Resources to Stay Informed

By reading this article, you’re already on the right track. Kudos to you! But, there is a wealth of information available for free on the internet that will allow you to understand ways to maximize your wealth and savings potential.

At Meld Financial, we’ve developed a great set of resources in the form of articles, in-person events and videos that you can find at our Meld University home page. On that page you will unearth a wealth of free information that can help get you on the track to growing your wealth like the rich.

By adopting these 10 habits, you could accelerate your wealth accumulation in a big way. If you need help, or if you feel you need to take action on your finances, don’t hesitate to contact us. Let our team of CFPs help you develop your comprehensive financial plan and get you started on our proprietary wealth management program we call your Financial Fingerprint™.

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Why Meld Financial?

Meld Financial, Inc. is an independent wealth management firm located in Birmingham, AL.

We specialize in financial planning, investment management, employee benefits and executive benefits for individuals, families, trusts, foundations and institutions.

We provide independent and objective services melded with customer-driven financial goals.

Mark McGarvey - Founder - Meld Financial

“We will always recommend the same course of action we would choose for ourselves, given the same circumstances.”

-Mark McGarvey, Founder