Do wealthy people handle their money in a different way to the rest of us?
Three financial experts spoken to by RNZ say normal people may be able to glean a few tips from those with more zeroes in their bank accounts.
Rachelle Bland, of Cliffe Consulting, said her wealthier clients tended to be very private about their money and people might not even realise how much money they had.
“Most of my wealthy clients are careful and deliberate spenders. They live within their means, and typically don’t regularly inflation adjust the regular withdrawal they get from their investment portfolio. They often have high levels of funds in liquid savings for emergencies or contingencies, but very rarely inclined to touch it other than for an actual emergency.”
Liz Koh, founder of Enrich Retirement, said wealthy people tended to be willing to take investment risks to [https://www.rnz.co.nz/news/business/1676467/does-kiwisaver-really-make-us-better-off
“They understand risk, they manage it, and they take calculated risks to make money. The thing is, you can’t get wealthy by saving income from a job, unless you have a huge salary.”
Even then, the key was to make sure that there was actually some saving happening from that huge salary, she said.
Koh said people who were very wealthy tended to use other people’s money to get there.
“To become wealthy, other than by winning Lotto, you need to use other people’s money – through taking on debt or allowing others to share in your wealth strategy. Generally, wealth comes from owning a business or owning investment property, both of which usually require either debt or equity from others.
“This has the effect of multiplying the returns on your own money through the principle of leverage. For example if you invest $100,000 of your own money in a business and borrow $400,000, you will receive an investment return on $500,000. If the investment return is higher than the interest you pay on the debt, this will multiply the return on your $100,000.”
Edward Glennie, of Genesis Advice, said wealthy people tended to be more aware of the tax they were paying and how it would affect decisions about how they structured their finances. “Regular people could certainly be more conscious of it.”
That could mean choosing the most tax-efficient investment options or making sure that you are claiming deductions you are allowed to on any self-employed income.
