Being wealthy is a subjective matter and means different things to different people. For example, being able to travel, living comfortably, and increasing your savings. But generally speaking, not having to worry about financial issues and having financial freedom can be a huge differentiator.
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Wealthy individuals, whether they got there through generational wealth or hard work, prefer certain money strategies and tend to not only maintain their wealth but also grow their bank accounts.
Here are 6 strategies that are beneficial for rich people.
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Diversification
Taylor Kovar, CFP, founder and CEO of 11 Financial, says that wealthy individuals are increasingly looking to diversify their investments across different asset classes to manage risk while managing risk. He said he often uses strategic investment strategies such as diversification, asset allocation and long-term investing because he understands the importance of this. Earn higher returns over time.
“For example, investing in a mix of stocks, bonds, real estate, and alternative assets can help you steadily build wealth over many years,” Kovar says.
take advantage of debt
Another strategy favored by wealthy people is to use debt to their advantage.
“Rather than avoiding debt altogether, wealthy people are using it strategically to grow their wealth,” Kovar said.
For example, you may use low-interest loans to invest in income-producing assets such as real estate or businesses, taking advantage of the potential for higher returns than the cost of borrowing.
“By using debt responsibly and focusing on investments with the potential for appreciation, you can grow your wealth over time,” Kovar added.
long term investment
Another sign of wealth is a willingness to invest for the long term.
As Erika Kullberg, personal finance expert and founder of Erika.com, pointed out, examples include Warren Buffett, who holds investments for the long term and takes advantage of compound growth in earnings and dividends. There are many investment experts.
“In the long run, this approach is preferable because it allows the market to effectively ride out sharp zigzags,” he said. “At the same time, it ultimately provides sufficient cash generation.” .
Philanthropy and giving strategy
Some of these are commonly used by wealthy individuals. For example, Emily Irwin, director of advice at Wells Fargo, explained that you can give as many relatives as you want in gifts of $18,000 a year.
“This is not only a conservative strategy, but also a flexible strategy where you can donate all your money one year and nothing the next, depending on your needs,” she said. “Also, if you make a loan to a family member of up to $18,000 each, neither the giver nor the donee has to report it as taxable income.”
Another example is intrafamily loans at favorable tax rates, she said, explaining that this tactic essentially allows a family to act as a “bank” for the family.
Beyond social benefits, philanthropy is another strategy that can provide economic benefits, such as tax breaks, as Kullberg noted.
“Foundations established by celebrities such as Bill Gates and Melinda French Gates demonstrate how philanthropy can also serve as an effective tax planning tool,” she said.
multiple sources of income
Wealthy people often focus on generating multiple sources of income rather than relying on a single source. Utopia Management controller Dane Habig said multiple sources of income are available, including investments, rental properties, side businesses and even royalties.
“For example, Robert Kiyosaki, author of Rich Dad Poor Dad, emphasizes the importance of this approach very well in his book,” Havig says.
estate planning
Proper estate planning is an important part of building wealth and leaving a legacy for generations, and is another important strategy used by wealthy individuals.
“They often work with legal experts to minimize their tax liability and ensure that their assets are properly managed and distributed upon their death,” Havig said.
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This article was originally published on GOBankingRates.com: 6 Money Strategies Rich People Love
