Opportunities for economic growth expand across the world, whether you have money or not. And when it comes to saving, rich people and poor people often think very differently. Wealthy people look for ways to grow their money to create more wealth, while economically disadvantaged people put off saving in favor of spending, or are unable to save at all due to their economic situation. This often happens.
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Here are 10 things rich and poor people do differently with their savings accounts.
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How rich people often handle savings accounts
Tyler Johnson, a certified financial planner and owner of Stillwater Financial Advisors, said an abundance mindset focuses on what money can do for you over the long term.
“The idea is not just focusing on what money can accomplish now, but weighing it against what it can do in the future,” he said.
This mindset includes budgeting effectively and thinking about the opportunity cost of money. In other words, spending money on option A means you can't spend money on option B. Which is more important?
“People with abundance minds divide their funds into goal buckets and prioritize the importance of those buckets to easily monitor their progress and drive them to achieve their goals in a specific time frame. ” said Johnson. “A person with a rich mind seeks out ways to get the highest risk-adjusted return on the money he or she stores, and allocates all available money to the homes where it will be most useful.”
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typical habits of rich people
According to Robin Snell, CFP and owner of Nested Financial & Tax Planning, a fee-only planning firm for Gen XY women, families, and the LGBTQIA+ community, the typical habits of high-net-worth individuals include:
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Automatic savings: Automatic transfers to your savings account ensure consistent monthly contributions.
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Goal-oriented savings: They tend to have specific financial goals, such as saving for retirement, investing in property, and building an emergency fund.
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Diversification: Diversify your savings by investing in a variety of short-term assets such as money markets, CDs, government bonds, and government agencies.
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Professional guidance: Seek the advice of a financial planner or advisor to help you make informed decisions about your savings and investments.
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Tax efficiency: Make the most of tax-advantaged accounts and strategies to structure your savings and investments to minimize your tax liability.
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Long term perspective: They are less prone to impulsive spending because they prioritize long-term growth and understand the value of delayed gratification.
How poor people often handle their savings accounts
“In contrast, a poor mentality is essentially the opposite,” Johnson says. “Emotionally poor people ignore future plans and only think about what they can do with money today. Budgeting and future planning are prioritized because money is only viewed in terms of current capabilities. Money tends to be lumped together, waiting to be spent as quickly as possible.
“Often, the focus is not on maximizing risk-adjusted returns, and this money is parked in checking accounts or low-interest major bank savings accounts. Money creates a sense of immediate gratification. It is thought to be a revolving door that only comes in long enough for you to decide how to spend it. Eventually, this will get them into a hole that will take a lot of time and intention to get out of. You will need.”
typical habits of the poor
According to Snell, the typical habits of poor people regarding savings accounts are:
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Limited savings: Low income or unstable economic conditions make it difficult to save consistently, even if you have it.
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Emergency savings: With a lack of resources for long-term investments, savings may be directed primarily toward covering unexpected expenses.
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Lack of financial knowledge: Financial education may be limited, which can lead to suboptimal, emotional, and illogical savings and investment decisions.
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Cash-based transactions: Reliance on cash transactions makes it difficult to track spending and save systematically.
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Immediate needs: Prioritizing immediate needs over long-term savings can make it difficult to break the cycle of financial instability.
Reasons for differences in savings habits
Snell said the contrasting savings habits of the rich and poor are due to a variety of factors, including:
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Income inequality: Because wealthy people have higher incomes, they can allocate more resources to savings and investments.
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Financial education: Lack of financial education can hinder effective savings strategies, and poor people may not have access to resources and information to make informed financial decisions.
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Immediate and long-term needs: Poor people often face more immediate financial needs, such as covering basic living costs and emergencies, and may have limited funds available for long-term savings.
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Access to financial services: Wealthy people often have easier access to financial institutions, investment opportunities, and professional advice, which allows them to make better financial choices.
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Thoughts and habits: Wealthy people are more likely to develop a mindset that emphasizes long-term financial security and develop habits that prioritize saving and investing. Poor people may be stuck in a cycle of economic deprivation, with a mindset focused on short-term survival.
“It is important to note that these generalizations do not apply to all individuals, as financial behavior is highly influenced by individual circumstances and choices,” Snell said. “Ultimately, the key to improving your financial situation, regardless of your income level, is education, setting clear financial goals, and developing an effective savings and investment strategy.”
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