It’s been a year since Occupy Wall Street protesters filled Zuccotti Park in protest of wealth inequality in the United States. While many want to dethrone the one percent, many also want to become the one percent, or at least live as much like them as possible. Even those who have inherited their fortunes use inside knowledge to keep them. Here are five tips from the super rich that you can steal to guide your financial future.
Reinvest Your Profits
No less an economic wizard than Warren Buffett advises that you reinvest your profits. Think of this as compound interest on steroids. Take any profits from the sale of a stock or dividends and reinvest it. This will give you more money to retire with and put early retirement within your grasp. Consider how quickly you would blow through $1,000 in profits or even $10,000. Now consider what that money can do for you in the stock market, a 401(k) or a mutual fund. It’s a no brainer.
Mitt Romney doesn’t have a $100 million IRA because he bought public common stock. On the contrary, the better part of his wealth comes from equity or direct ownership. In fact, the super wealthy (and their universities—this is the primary instrument investment for endowments like those of Yale and Standford) prefer this type of investment due to the large dividends. Pair this with secret number one and you may be retiring very early indeed.
Skip The Fancy Car
Alice Walton, the second-richest woman in the world, doesn’t drive around in a Porsche, Bentley or Maserati. She drives a Ford F-150, an affordable American truck driven by everyone from construction workers to public school teachers. Ingvard Kamprad, founder of Ikea is worth approximately $28 billion. He drives a 1993 Volvo 240 wagon, worth about $1,500 in resale. Why? Cars are depreciating assets. If you had a nickel for every time you heard that a car loses half of its value when you drive it off the lot, you’d have a lot of nickels. The rich save their money for things that appreciate, like houses, or investments such as other businesses that create even more money for them.
Penny Wise, Pound Wise
This is another one from the Oracle of Omaha. If you take care of your cents, your dollars take care of themselves. It’s not that you should never splurge on something like gourmet ice cream or the guitar you’ve wanted since you were a kid. But wasting money getting pricy lattes every day adds up quickly. Using the latte as an example, assuming that you get one $4 latte every workday of the year, you’re going to end up spending an $1,000 a year just on coffee. If you’re that addicted to gourmet joe, make your own at home. It might take a minute or two, but it pays for itself pretty quickly. What are you spending money on daily or weekly that adds up over time? What cheaper alternatives could replace it?
Stick With It, But Know When To Cut and Run
If you truly believe in something, you should stick with it, even when the world seems to be doing everything to tell you that you’re wrong. Steve Jobs provides an excellent example of this. When Apple unceremoniously showed him the door, he started his own computer company, NeXT, Inc. The company sold around 50,000 units, not exactly the ringing success that his name was associated with. However, this company later became his entrée back into the world of Apple’s boardrooms. The rest, as they say, is history.
On the other hand, knowing when you’re licked is a big part of financial success. There’s no point to keep throwing good money after bad in an attempt to keep a sinking ship afloat. Put simply, just because you just threw $500 into your dying car doesn’t mean you should dump another $1,000 into it. Know when the only thing left to do is cut your losses.
Wealth Is A Collection Of Habits
The above are some financial habits of the one percent. You might not ever join the one percent and that might not be your goal. However, taking a few cues from the upper crust can have you retiring earlier, retiring better and enjoying the road that takes you there more.
Although money can’t buy happiness, managing it properly can’t certainly make life easier.