Knowing everything about money isn’t just for the rich—it’s for all of us. But that doesn’t mean the rest of us can’t learn from the rich. The financial principles that keep the rich rich are accessible to all of us.
Learn more: 6 money moves you need to make if you want to be like the rich
Check out: I’m a Self-Made Millionaire – 6 Steps I Took to Get Rich on an Average Salary
GOBankingRates spoke to financial experts to find out five important things about money that the rich know but the middle class often doesn’t.
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Buying a house and a car: emotional vs. financial decisions
Saundra Curry, co-founder of BC Holdings LLC, pointed out a difference in how wealthy people approach major purchases: “One of the fundamental principles of building wealth is being prudent with major expenses, especially in the areas of home ownership and automobiles.
“While it is common for Americans to succumb to the temptation to upgrade their homes every few years, driven by factors such as job changes or a desire for more status, this tendency is often more emotional than financial.”
Curry said the rich view their homes not as wealth-building assets but as places to live rather than “sources of wealth creation and vehicles as mere means of transportation.”
Discover more: 8 Best Luxury Cars for Wealthy Retirees
Early and consistent retirement planning
Kyle Enright, president of Achieve Lending, emphasized the importance of early retirement planning.
“They save for retirement early and … think of it as ‘saving to have options,'” Enright said. “In other words, it’s about having money to do what you want, when you want – not just the goal of quitting work at a time that might seem too far away for a young adult.”
To illustrate the power of saving early, Enright gave an example: “Let’s say you start with $500 and then save $500 a month in a savings vehicle that earns 4% for 40 years. With daily compounding, in 40 years you’ll have more than $595,000. Start with $1,000 and save $1,000 each month, and you’ll have almost $1.2 million. But if you save the $1,000 a month for just 20 years, you’ll end up with only $369,000.”
Thomas J. Brock, CFA, CPA and expert at Annuity.org, agreed.
“(Wealthy individuals) invest as early and as long as possible to generate ‘interest on interest’ and accelerate wealth creation,” he said.
Objectives and strategic spending
Wealthy people are more likely to set clear financial goals and align their spending accordingly.
Enright said, “They constantly think about what they want to accomplish in their lives and set goals. Then they develop spending plans to help them achieve them. Some goals may be smaller and short-term in nature (perhaps remodeling a kitchen or bathroom); others may be larger and long-term in nature (funding their children’s college education or starting a business).”
This goal-oriented approach helps maintain financial discipline.
“It’s about focusing on the goals that are important to you,” Enright added, “which will give you the discipline to take steps – big and small – to manage your money carefully.”
Strategic use of debt
The wealthy have a different attitude toward debt. As Enright explained, “The only debt they have is ‘productive’ debt. Productive debt is debt that creates value over the long term and can include mortgage debt, student loan debt, or business debt – as long as the payments are manageable, limited, and fit within the budget.”
He stressed the importance of avoiding high-interest debt: “In almost all cases, it is not credit card debt. That is counterproductive to prosperity.”
Investing for multiple income streams
Echo Wang, CEO and co-founder of EpicBooks, highlights a key difference in the way wealthy people handle additional income.
“The difference is that every dollar above basic needs is invested to create more money. This is what the rich do differently,” Wang said. “Most middle-class people essentially live paycheck to paycheck, improving their lifestyle every time they get a raise or bonus – while the rich use their extra money to buy more income-producing assets.”
Dutch Mendenhall, author and founder of RADD Companies, agreed: “They don’t just earn it – they make the money work for them. They know it’s all about saving taxes, investing wisely, expanding income streams and managing their lifestyle.”
Aaron Cirksena, founder and CEO of MDRN Capital, reiterated this point: “Money is a tool. It is meant to be lucrative, which means that if you use it properly, for example, investing it and spreading it across different assets, it will earn you much more than if it were simply sitting in your savings account.”
Cirksena added an important distinction: “The rich take it and invest it so it can grow. They also understand that having a high income doesn’t mean you’re rich. It’s how you manage that income that allows you to accumulate wealth and build your wealth.”
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This article originally appeared on GOBankingRates.com: 5 Things the Rich Know About Money That the Middle Class Doesn’t
