The wealthiest people can afford to overspend on the things they value, but they didn't spend all of it on splurges. While the wealthy may splurge just like the rest of us, experts who work with the wealthy say there are certain things — usually services — that they never spend more on than they need to.
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When wealthy people purchase the following services, they always get value for their money.
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Investment Fees
Because the wealthy derive most of their income from investments rather than work, they are very careful not to spend too much money so that the profits continue to flow to them.
“One area where the wealthy are adamant about not overpaying is investment management fees,” said Chris Yang, co-founder and investment expert at Coins Value. “They understand the horrific impact of fees that compound over time, which can significantly reduce returns.”
Many wealthy individuals have teams of financial advisors and wealth managers who devise strategies to maximize their investment dollars. The ultra-wealthy even have “family offices” with dedicated professionals.
But some people do what any smart investor on an average budget would do.
“They are actively seeking out lower-cost investment vehicles like index funds and exchange-traded funds that track broad market indexes,” Yang said. “The average expense ratio for passive funds is 0.16%, compared to 0.67% for active funds, according to Morningstar research.”
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education
Few people know more about the financial priorities of the wealthy than Alec Kelsey, a California CPA with IRS Extension Online who previously worked at two of the “Big 4” accounting firms, PricewaterhouseCoopers and Ernst & Young, providing tax and accounting services to 30 Fortune 500 companies.
In his experience, “education is a very important priority for many affluent families, whether for themselves or for their offspring,” but they pursue learning with return on investment in mind.
“They recognize the prestige of a particular institution or specialized program, but are cautious about the true return on their investment,” Kelsey said. “They closely evaluate reputation, curriculum and long-term benefits, and use their connections and negotiating power to secure favorable terms, scholarships and discounts to ensure they are not overpaying for a subpar educational experience.”
Home renovation and design
A beautiful, luxurious home is a sign of wealth, but that doesn't mean that the wealthy don't solicit bids, evaluate costs, and shop around for the best price just like middle-class homeowners.
“The wealthy are keenly aware of the transformative potential of home renovation and impeccable design,” Kelsey says, “but they also exercise sensible caution, closely vetting contractors, designers and material suppliers to avoid overcharging and shoddy work. They leverage their wealth to secure the services of superior professionals at fair rates, ensuring that their residences exude an air of sophistication without succumbing to financial exploitation.”
Childcare and tutoring
The wealthy have the means to invest in quality care and academic instruction for their children, but as with private and higher education, they are making the most of their money.
“Affluent families know that quality child care and education are paramount for their children,” Kelsey says, “but they tread carefully and vet providers closely to ensure they receive excellent service without being charged exorbitant fees. They use their resources and connections to secure top professionals at fair rates.”
insurance
Prestigia Insurance founder John Crist has spoken at length about how during his 25 years in the financial services industry, he has seen people overpay for insurance or buy insurance they don't need, and how these people are rarely wealthy.
“Throughout my career, I've observed that the wealthy never overpay for insurance,” he says, “Instead, they prioritize comprehensive coverage and use their purchasing power to secure the most competitive rates.”
In fact, they often hire experts to do the comparison shopping for them.
“High-net-worth clients often hire financial advisors to compare quotes from different insurers to ensure they are getting the most value without sacrificing the quality of their coverage,” says Crist. “They gravitate toward insurers with high financial ratings to ensure the insurer's ability to meet its claims obligations. Partnering with a financially strong company reduces the risk that a claim will not be paid, which is essential when protecting significant assets such as a multi-million-dollar home or an expensive art collection.”
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This article originally appeared on GOBankingRates.com: 5 Things the Rich Never Overpay for
