2019 is here and let’s go counter-intuitive.
Don’t plan for retirement.
In the world of finance, there are two types of financial advisors, financial planners whose goal is to help customers get ahead and wealth managers who assist those who have already made it.
Financial planners primarily assist with lifestyle planning, including budgeting, college, and retirement. Most of their clients are middle class.
Wealth Managers, on the flip side, provide services to mostly high-net-worth individuals (HNWIs) and ultra-high-net-worth individuals (UHNWIs). These services can include tax planning, capital gains planning, estate planning, asset protection and risk management.
For those looking to become wealthy, neither the financial
planner nor the wealth manager will be of any help.
With commissions tied to securities trading and insurance sales, financial planners are less concerned about helping you get ahead and more concerned about helping themselves get ahead by charging fees on trades and earning commissions and residuals on life insurance policies.
When their primary duties are to make sure you have enough for your children’s college funds and your retirement fund, helping you become wealthy is ultimately not the function of financial planners.
As for wealth managers, they only deal with those who have made it so they won’t be of much help to those seeking to become wealthy since they’re more about maintaining wealth and less about growing it.
So, who do you turn to move out of the middle class
and into the sandbox of the HNWIs and UHNWIs?
The key, in the case of self-made HNWIs and UHNWIs, is YOU. You are the person who can make this possible You’re the one that has to make it happen. But where to start? You start by studying the financial and lifestyle habits of the wealthy vs. the middle class. More specifically, you study the habits of how the wealthy become and remain wealthy and how the middle class remains stuck in a rut…the proverbial hamster wheel.
When it comes to finances, spending habits and overall mindset, there are some obvious distinctions between the wealthy and the middle class. Here are some of the most significant differences:
1. Multiple Streams of Income
The wealthy realized at an early stage that they were never going to become wealthy from just one income stream, their jobs. A person with a wealthy mindset and one with a middle-class mindset can both have the same jobs, but the difference is the one with the wealthy mindset will use the income stream from their job to create additional income streams, and if they can increase their current income stream, they’ll have more to invest in to create additional streams.
The mindset that to become wealthy you have to both 1) increase your current income stream and 2) create multiple streams of income is the driving force behind the wealthy’s other lifestyle and financial choices on this list.
2. The Wealthy are Comfortable with Being Uncomfortable
The wealthy realize that to increase the investing base or to create other income streams; they will have to take chances and move out of their comfort zone. They fully embrace the risk-reward spectrum. They know that to reap the biggest rewards, they must take the biggest risks.
That’s why those with a wealth mindset will be the first to ask for a raise. The middle class is content with the annual inflation adjustment to their pay, but the wealthy will ask for what they’re worth. The wealthy understand that failure is always a possibility, but if facing that danger means a chance to move ahead, they’ll take that risk. Whether that means starting their own business, investing in real estate or investing in a new venture, the wealthy will take the risk the middle class is content to avoid.
The middle class is happy being comfortable. It’s comfortable working a “safe” job. It’s comfortable working for someone else. It’s comfortable not asking for a pay raise. The wealthy are the opposite. They’re never comfortable. In other words, they’re never satisfied with where they are and will do everything in their power to keep moving the needle.
3. The Middle Class Accumulates Things; the Wealthy Creates Them
The middle class spends much of their money on fancy cars and more home than they need. To the middle class, it’s more important to accumulate things. The rich understand that to become wealthy, you have to want money more than you want things and that’s why they’re creators. They create products, services or in the case of real estate, homes that the middle class want.
The wealthy live below their means in order to build their investment capital. The more they have to invest, the bigger their war chest grows, which they will turn around and reinvest. This has the effect of not only accelerating wealth but compounding it as well.
The wealthy know the difference between appreciating assets and depreciating liabilities. That’s why they’ll usually forego brand new cars for ones that are one to two years old that don’t lose half their value once driven off the lot. The money saved will be used to create or increase an alternative income stream.
4. The Rich Understand the Power of Leverage
The middle class believes in hard work, and wealthy individuals believe in leverage. There’s nothing wrong with hard work, but hard work alone will not make you wealthy. The middle class would take off work for a month to renovate a home themselves because they believe in the power of hard work. The wealthy understand the power of leverage and that it would be far more cost effective to hire someone to do the work than to do it themselves.
The money they saved from foregoing fancy things can be leveraged across three projects instead of just one. The wealthy work just as hard as the middle class, they’re just able to accomplish more through the power of leverage. They aren’t afraid to defer to someone else’s expertise if it makes them more money in the long run or advances their goals. They understand that leverage frees up time for them to work on the things that matter the most in business and in life.
5. The Middle-Class will Focus on Just Saving | The HNW Investor Focuses on How to Reinvest the Savings into Another Income Stream
Saving is important, but what you do with those savings is even more important. The wealthy aren’t content with a fixed or safe return on their savings like the middle class are when they put their money in a CD or low-risk mutual fund.
The wealthy save so they can invest for earnings. To them, investing in a CD, bond or low-risk fund isn’t earning. They want to put those savings to use, to drive the earnings engine. The wealthy put their savings to use by creating more streams to earn or earning more with the streams they have.
This could mean expanding a business or branching out into another business line. The same concept can be applied to real estate. It could mean buying more of the same types of residential properties in the current investment portfolio or expanding into commercial property.
To become wealthy, you will have to
rely on yourself to reach that goal.
A financial planner won’t help you get there, and a wealth advisor won’t talk to you until you’ve reached that pinnacle. Since there’s no such thing as a wealth planner, the next best thing is to study the habits of the wealthy and mimic their tendencies and priorities to reach the heights they have achieved.
Some differences between the middle class and the wealthy are major, while others may seem minor. But the bottom line is, if you want to become wealthy you must begin thinking and doing the things wealthy people do.