top of page

I Studied The Rich and Here's How They Manage Their Money

Do you know that the richest 1% of the world have more money than the remaining 99%? This may sound absurd but it’s the truth! The world’s wealthiest people have many things in common and not surprisingly their money methods often overlap so here are some examples that perhaps you can use yourself!

Method #1: Budgeting their monthly expenses

The first way the 1% manage their money is by budgeting their monthly expenses. You may wonder why they need a budget when they have enough money to cover their expenses. For instance, how long do you think someone as rich as Bill Gates of Microsoft, with a net worth of $100 billion, can last if they decide to spend one million a day? Crazy enough, it would take him over one hundred thousand days to burn through this immense net worth spending $1 million a day. However, in most cases, the rich don’t spend their money this quickly but the example is to make you understand why it is important for you to do what the rich are doing. If the rich, who have enough money still budget their monthly expenses, then I think you should do the same.

But, the top 1% do not just have a budget, they stick to it! It is not enough to create a budget as most people do, it is more important to stick to the budget. Having a budget helps them track their spending and make necessary adjustments. With the help of a budget, they can manage their money and know where it is going even before spending it. The sad reality is that many people who aren’t as affluent as the 1% fail to create or maintain a budget in their day to day lives. This very often leads to overspending, the assumption of high-interest debt and bearing more financial stress than is necessary. Therefore, if you want to to manage your money like the 1%, you should start budgeting your monthly expenses right away.

Method #2: Reviewing and negotiating their big 3 expenses

If you have been reading about how to manage money and attain financial independence, then you must have come across the advice to cut down your spending. This is good advice but it depends on what cost you are cutting down. Like most people, you may be focusing on expenses that have little effect on your finances. The three biggest expenses that you will have no matter what life circumstance you’re presently in are housing, food, and transportation. These three generally account for more than 50% of your total expenses and if you want to learn how to manage your money like the 1%, you must learn to review and negotiate these expenses.

The first expense, and often the most costly is housing. If you want to reduce how much you spend on a monthly basis then this is where you should start. Reducing your housing expense can involve selling your current house and downsizing, renting out a room or moving to a city with a lower cost of living. By doing these things you can lower of eliminate any mortgage payments you currently pay or offset these costs with a tenants cash receipts. Another big expense is the cost of transportation. We all need to get around and whether you travel by car, bus or bike there is always a cost involved. Quite frankly, the cost of transportation can dig deeply into your pocket therefore if you want to succeed financially then you must learn how to manage it well. Some simple ways to cut down this expense line item is to bike to your destinations when possible, rely on public transportation over driving or sell off your car altogether. Sure, this may make your life a little bit more inconvenient in the short-term but the savings will be well worth it!

The third big expense is the cost of food. Obviously, you can’t go without food but you can control how you eat in order to save money. For example, it’s usually less expensive to cook your meals at home than to go out to the restaurant so working on your culinary skills can lead to some nice savings over time. Moreover, a little planning before grocery shopping can go a long way. Doing so will not only allow you to get through your shopping faster but will allow you to take advantage of sales at the same time!

Method #3: Paying down consumer debts as quick as possible

Debt is one of the things that can quickly cripple you financially. I’m sure you know this if you’ve ever had to pay back debt before. Being in debt means using money that could have been saved or invested to pay back creditors which almost always comes with extra fees in the form of interest. But let’s not gloss over the fact that not all debt has the same impact on your finances. Consumer debt is one of the debts in which you must do everything you can to pay it off as quickly as possible. Consumer debts are debts that are a result of purchasing goods used for individual or household consumption. The easiest way for you to understand consumer debt is that they are the debts that are not used for investment or running a business. Some common examples include credit card debt, student loans, auto loans, mortgages, and payday loans, among many others.

The first reason why you need to pay this type of debt as soon as possible is that most consumer debts come with a high-interest rate. The longer it takes you to pay them off, the more money you will have to pay in interest. As opposed to what you think, the 1% still incur some debt. They see debt as a tool and use it to gain financial leverage but when it comes to consumer debt, they pay it down as quickly as possible.

The first method the 1% manage their debt is avoiding consumer debt in the first place. This is the most logical strategy as without debt, you wouldn’t have to worry about paying anything back. The rich can do this by spending less than they earn and living within their means. And if they have any debt, the first thing they do is to create a debt repayment plan. They calculate how much debt they owe and plan how they are going to pay it back. They usually start with the ones with the highest interest rate first. They also pay at least the minimum on their credit card every month and pay more whenever they can.

Method #4: Planning tax payments

One other thing that differentiates the 1% from the rest of the population is how they plan everything relating to their finances, including their tax payment. Those who earn more money are expected to pay more tax and you may think that the 1% pay more tax but that is not true. They plan their tax payment and explore different ways to pay less tax using the advantages of the law that allow them to lower their tax rate.

Warren Buffett who is one of the richest people on earth once said he paid a lesser tax percentage than his secretary because of how he earned his income. This shows that the 1% have learned how to effectively manage their money more than the remaining population. They hire the best financial advisors who use their experience to manage their money for them and this helps them save a lot of money in tax. They make most of their income through investments and other means, which allow them pay a lesser tax rate than those who make their money through employment income.

Another way that they strategize their tax remittances is by separating their personal money from their business-related funds. Most of the 1% are either entrepreneurs or business owners and they earn their money through their business or company. This is another reason why they can reduce the amount that they pay as tax in percentage.

Method #5: Leveraging credit card rewards

When it comes to the use of credit cards, there is a hot debate whether you should use them or not. Most people enter into debt because of their uncontrolled use of credit cards. The main challenges that people who use credit cards face are upfront card costs, high-interest rates, and the habit of overspending that it can cause. However, there are some benefits of credit cards, and the 1% have learned to use them to their advantage. They are more deliberate about their finances and that is why they can take advantage of the rewards these cards can offer.

The first thing you must understand is that credit cards are not all evil. They can act as a safety net if you find yourself without cash on hand but you should only use them in this way if you have the money in the bank to cover this expenditure. When you learn to use credit cards responsibly, the upsides can be very lucrative.

Many credit card companies give their users rewards to encourage them to use their cards. These rewards usually come in three forms which are: cashback rewards, mileage, and points. The 1% usually qualify for most of these benefits because they maintain a good credit history by paying their balance on time.

When you use your card responsibility then you should expect some rewards from them. Cashback reward is the simplest type of reward that comes with using credit cards. In this example, they pay a certain percentage of the total amount you charged to your card back to you. Mileage rewards typically give a discounted cost for an airline ticket if you travel frequently and an extra bonus for using a credit card when you travel. The third reward option is points. Credit card companies will give you certain bonus points each time you meet certain requirements which are usually tied to spending levels. The points can later be converted into cash which can be used for purchase. Overall, the rich use credit cards to gain financial rewards and you can too if you use them appropriately!

Method #6: Exploiting low-interest debt tools

The 1% see debt as a tool and exploit it well. They usually look out for debts with low-interest rates that they can easily pay back. They don’t take loans to buy consumable items. Rather, they take loans to invest in their business to build lasting wealth.

They use debt as an advantage to help them do more than they would have been able to do with their own money. Therefore, they take loans to build assets and not to buy liabilities and they also avoid credit card debts as much as possible.

If you want to manage your money like the 1%, you must be able to differentiate between good debts and bad debts. Good debts are the debts that help you build more assets and accumulate wealth while bad debts are the ones you spend acquiring liabilities.

Method #7: Investing excess cash into self-development

One of the most important investments that the top 1% make is an investment in their self-development. The top 1% don’t care how much they spend on self-development because they know that the reward is worth it. They attend seminars and workshops and they read at least every day. They are always curious and eager to learn something new.

They develop every aspect of their lives including their spiritual life, finances, business, health, and relationships. Whenever they can’t read, they may listen to audiobooks and podcasts in their cars.

If you want to be like the 1%, then you must be ready to do what they are doing and now you know how!

bottom of page