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5 Things Rich People Do That You Don’t

20131025_124816The difference between wealthy people and non-wealthy people comes down to a small set of habits anyone can embrace themselves. There is no special trick or secret. Wealthy people do things the average person does not. Super wealthy people like Elon Musk, Bill Gates, and Steve Jobs share the same wealth-building habits with a bit of luck to give them a push. The great news is you can be rich, too! No promises on the super-rich thing, but you can be a millionaire if you choose.

There is an advantage for people like me working in accounting. I see people from all walks of life and their true level of wealth. Over time it becomes apparent how their habits reflect in the level of wealth and quality of lifestyle they have. We stand in awe and envy when we see people retiring at age 30 or 40, and rather than learn their habits, we seek to tear down their success. The only difference between people who retire early and those finding a comfortable retirement at 65 is how soon the wealth building habits are learned. Here are the five things I see rich clients do on a regular basis and non-wealthy clients frequently do not. Not only do the wealthy have these habits, they exercise them daily.

Investing versus saving. It should come as no surprise wealthy people consume a smaller portion of their income than people with a low net worth. Around here we preach spending less than half your income, putting the reminder into investments.

Charlie Munger says you should invest first and only spend the left over. I agree. Wealthy people do NOT save; they invest. What they invest in is businesses. Real wealth creation does not come from a bank account or investments in commodities. Wealth is created when a business invests capital and receives a greater return than the cost of capital. I know it is a mouthful, but what this means is if you want to get rich and stay rich you need to invest in wealth creating businesses.

Business is a risky investment. The only way to mitigate the risk is to spread your investments over a broad range of proven profitable businesses. Might I recommend an S&P 500 index fund over at Vanguard? You do not need the knowledge or skills of a Warren Buffett to build wealth. You can attain wealth and remain rich by investing in an index fund. The market will have days, weeks, months, even years where the wealth building thing does not feel like it is moving forward. The stock price is not wealth! The companies you invest in create wealth from return on invested capital. Wealth can still be created while not showing up in the stock price for a while. Smart investors load the boat during these opportune times.

Small business owners, like The Wealth Accountant, invest most of their net worth in the same fashion. Running your own business is a great way to create wealth, only all your eggs are in one basket. So, enjoy your business. Only, be certain to diversify just in case.

20131024_181323Don’t panic! You know the kind of person I am talking about here. This is the person screaming at any provocation. Wealthy people keep their wits. Turbulence is not an opportunity to run around like a chicken with its head cut off. (Did I mention I come from a farming background?) Survivors of a catastrophe are disproportionately from those who kept calm in the face of danger. Most danger is perceived.  Running in a circle screaming “FIRE” will get you killed; the rich mindset calmly walks from the burning building and to safety.

The same applies to wealth building. When clients call all concerned about the economy or stock market it is hard to calm them down. Only the people panicking call. Wealthy people are carefully picking their place to put more money to work creating wealth. Rich people love it when business prices (stock prices) are on sale.

Rich people rarely follow the herd. They blaze their own trail by keeping calm when the world seems on fire. It reminds me of a story about an old stockbroker and a young stockbroker. It was the Cuban Missile Crisis. President Kennedy just announced on TV he targeted 50 Russian cities in the event of a nuclear war. The market began selling off.  The young stockbroker started screaming to sell. The old stockbroker quietly started buying stocks. “What are you doing?” the young broker screamed! “There could be a nuclear war!” The old broker nodded and smiled. “There could be,” the old stockbroker said. “If it does not happen my stocks will soar in value; if it does happen my trades will never clear.”

One final adage before we move on. Remember, the next 100% move in the stock market is up, not down. If I am wrong it will not matter. Therefore, the risk is NOT being invested in the 500 biggest wealth creating enterprises on the planet. You can call Vanguard after you finish reading this post.

Belief. Plenty has been written about the Law of Attraction. Rich people know they are rich, feel they deserve it, and act accordingly. This may sound strange, but most people do not believe they will ever be rich, do not feel they deserve to be rich, and take the necessary steps to make their reality true. I see a skeptic in the crowd.

Think of it this way. How much money did you earn 10 years ago? Twenty years ago? Prices have gone up a bit during this time frame, but what about your investment rate? If your annual income is currently $80,000 per year and in the past it was $40,000, why did you spend more as it came in? You see, when you refuse to save/invest half your gross income you are acting like you do NOT want to be rich. Over the years I have actually had employees self-destruct after getting a generous pay increase; deep down they felt unworthy and took steps to destroy any hope they would have of becoming wealthy.

Wealthy people have vision. They know where they are, where they are going, and how they will get there. For the rich it is like going on vacation for the rest of the population. We can see ourselves in Costa Rica or on a Mediterranean beach; the rich see themselves with a lot of money invested in income producing investment. Take your vacation vision and apply it to wealth creation and soon you too will be rich.

51t6REaoLPL._SY346_Lean heavy on professionals. Non-wealthy people like to take shortcuts on the important stuff. Poor people save $100 on tax preparation fees only to overpay their taxes by $2,823. Some things are worth doing yourself, other are not. Rich people know the difference.

Over the years I have owned several businesses. Some of the businesses require a significant amount of legal work. Because I deal with legal issues daily I have a reasonable understanding of law. With the exception of tax law, I use attorneys extensively. I actually keep attorneys on retainer to run ideas past them and have an attorney as a full-time employee. Nothing can destroy wealth faster than legal issues. There is no number so large ever invented a plaintiff would not asked for it.

In the tax field I see people doing their own taxes and overpaying far more than my fees would ever amount to. Since taxes are your biggest expense in life left unattended, it is an absolute necessity to have a tax professional in your corner if you want to be rich. I might add the professional needs to be competent as well. I should not have to say it, but I do.

Poor people also tend to skimp on health issues. Rich people tend to smoke less, over consume alcohol less, use illegal drugs less, and engage in fewer risky activities. Risky behavior is expensive and a destroyer of wealth. If you are going to be rich you may as well be alive to enjoy it.  Wealthy individuals tend to have an annual exam and discuss health issues with their doctor. Rich people deal with medical issues early before they become life threatening.

Professionals provide the expertise wealthy people need to build and preserve their wealth. This does not mean the wealthy avoid research. The rich review medical literature and familiarize themselves with the law. This self-education allows the rich to have a more meaningful discussion with their professional team.

Take a healthy interest in the tax code. The tax code is huge and the interpretation changes daily as the Tax Court and IRS regulations seeks to clarify your tax liability. The host of taxes we are hit with each day means taxes takes as much as half our income. This simple fact makes taxes the single largest expense in our life. Reducing the tax burden is an easy way to super-charge wealth creation and preserve wealth.

Tax professionals can do wonders for your personal financial statement. Still, no tax professional understands you like you do. I hate it when I work with a long-term client and discover there is a missing piece to their finances I was never made aware of. I keep asking questions so I do understand my client, but there is no guarantee I will know everything I must know to maximize results. Trust your tax professional, but verify.

Taxes are only boring in a vacuum. When tax savings provide massive financial security the tax code reads like a Stephen King thriller. Educate yourself on tax issues and question your tax pro. Any professional who does not have time to learn who you are cannot do his job! I must know my client to earn my keep. The best way for me to do my job is for you to understand at least the fundamentals of how taxes affect you.


There you have it, the 5 things rich people do that you don’t. Time to step up your game. Special thanks are in order to a younger version of me. This post is a continuation of an article I published on January 20, 2010: 5 Steps to Retire Rich.


Wednesday 13th of September 2017

What kinds of things are you trying to learn about your clients?

I have a tax guy and sometimes I feel like I should go back to doing my own taxes if I'm getting standard deductions. When do you cross the your money is complicated enough to benefit from tax guy threshold?

Also, I started your blog from the beginning so... I need some time to catch. Thank you for writing.

Keith Schroeder

Wednesday 13th of September 2017

I always dig into a client's life to discover anything missed, EF. That's my job.

Doing your own return or hiring a professional is something you need to decide. Some people should never consider doing their own return; some I'd like to hire and put on staff. When you feel you are in too deep you call the tax guy. Most people, IMO, can prepare their own return if it is simple.

The Weird Bumblebee Blog

Wednesday 10th of August 2016

Great post! I've always been not so keen on investing, but I'll give it a go. Congrats ~Adriana from