In the ’80s, “Lifestyles of the Rich and Famous” was a popular show on TV. Hosted by British TV personality Robin Leach, the show took viewers on a weekly tour of the extravagant lifestyles of wealthy entertainers, athletes, socialites, and business magnates.
The lives of the rich and famous often seem glamorous, but the story that is often ignored is that the rich and famous don’t often stay that way. The list of entertainers, athletes, and old-money socialites who blow through all their money and go broke is long.
A less entertaining, but more informative show would be “Habits of the Rich.”
- How do self-made millionaires and billionaires build and sustain their wealth?
- What habits set them apart from everyone else?
Here are some ideas:
They make their money work for them and not the other way around…
The rich understood from early on that working a job – trading time for money – would not lead to the road to riches. Only through putting their money to work for them through passive investments are the rich able to generate income 24/7 – income that doesn’t stop when you do.
The rich don’t stop at one stream of passive income. They create multiple streams of income to accelerate their financial freedom timeline and for diversification. If one stream of income is interrupted, the other streams can pick up the slack.
They have little to no consumer debt…
The rich spend less than they make. How do you spend more than you make? Debt. They keep tight tabs on all their expenses to make sure they’ll never have to go into debt to meet their expenses. The rich are savers but they don’t just shove their money under the mattress to be eroded by inflation.
The rich make sure that any capital outlays above and beyond their living expenses are productive and not destructive – meaning any money that goes out must bring more money in. That’s why they put money in passive investments that build wealth and not erode it like fancy cars and expensive vacations.
They’re unemotional about investment decisions…
Many of the rich were already successful in business or their professions before getting into passive investments. They know how to assess situations and evaluate opportunities based on facts, metrics, and data. They take emotion out of their investments and take themselves out of emotional investments.
What do I mean by emotional investments? I’m talking about investments vulnerable to mob mentality – where an asset’s value is impacted by non-data-driven factors like herd sentiment, social media, the news, and geopolitical developments.
How do the rich remove emotions from their investment decisions?
They invest long-term. They put the work upfront to evaluate a deal but once they commit their capital, they’re hands-off. They gravitate towards passive investments with long lock-up periods not only because the long-term financial prospects are more favorable but also because it prevents other investors from sinking the deal by pulling out capital before the end of the term. They’re legally prohibited from doing so. This allows savvy investors to sit back and let management do their jobs.
They don’t follow any crowds…
The rich zig when others zag. They take advantage of opportunities and find bargains when others retreat. They’ve been around the block long enough to understand the dangers of following the mobs because it usually doesn’t end well.
They understand the value of partnerships…
The rich are all about trading money for time. They know how to evaluate deals and – often more importantly – know how to evaluate management.
When the value of leveraging the expertise and experience of others outweighs whatever profits they would be giving up by doing something themselves, the rich will be happy to partner with the right parties.
Teaming up with the right partners allows the rich to diversify their portfolio and generate multiple streams of income. They realize they can’t do it all themselves. Better to team with masters of their own geographic and market domains than to personally be an investment jack of all trades – being everywhere and in everything but not exactly going anywhere.
The habits of the rich are boring and unglamorous, but they work.
These habits have always worked for them and they have no intention of changing them now – no matter what the latest crazes are.
