Yahoo Finance 13 Everyday Money Deals Rich People Take Advantage Of
There are many ways to grow your wealth — and the rich know exactly how to do just that. They understand how to get the most out of their buck by taking advantage of everyday money deals we might overlook.
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“These strategies, while more pronounced among the wealthy, can offer insights for individuals at all wealth levels to make informed financial decisions,” said Howard F. Goldman, finance specialist at Money4Loans.
Here’s a look at some of the ways they go about it.
Taking Advantage of Roth IRAs
“When you have a Roth IRA, you put in after tax dollars and don’t have to pay tax when you take the money out after you retire,” said Mark Chen, founder and CEO of BillSmart.
He notes that while most people can only put just a couple thousand a year in Roth IRAs, the wealthy can supercharge their contribution by putting in venture capital assets that have a low basis now but could be worth millions in a couple of years. “Especially if they know this will be the case.”
Borrowing Against Their Stock
Eventually, most people become rich because they own businesses and not from salaries and bonuses, said Chen.
“One way that rich people unlock their business wealth is by borrowing against their stock. By doing so, they avoid selling their stock and having to pay capital gains and ordinary income.”
The interest rates charged by bankers for borrowing against their stock is usually quite low, Chen explains, and once the business owner dies, their stock is valued at the price at their death and the tax rate becomes a lot lower.
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Infinite Credit Card Points
According to Chen, many rich people are business owners and put their expenses on credit cards, not because they need to borrow, but because they want the points.
“With these points, they get thousands of dollars of free airfare and hotels.” Just by using a rewards credit card for purchases, they get a 1-3% kickback.
Jonathan Merry, finance expert at Moneyzine agrees. “Using a credit card for all your spending helps rich people track their expenses more efficiently,” he noted.
“Using a rewards card allows them to take advantage of cashback, rewards, and airline miles. Rich people know every transaction they make with their card is a chance to earn valuable perks,” Merry explained. “If you pay your card off every month, [and] you don’t pay interest, you are getting points for free that you can use for luxury travel.”
Advanced Mortgage Strategies
Percy Grunwald, personal finance expert and co-founder of Compare Banks notes that wealthy individuals often employ advanced mortgage strategies to leverage low-interest rates.
“For instance,” Grunwald said, “they may choose an interest-only mortgage, then invest the saved money into high-return investments. This approach can significantly increase wealth over time.”
Infinite Banking
The wealthy sometimes utilize a lesser-known financial concept called ‘Infinite Banking,’ Grunwald highlighted. By setting up a whole life insurance policy with a mutual insurance company, they can borrow against the policy’s cash value, allowing them to finance investments, pay off debt and grow their wealth while maintaining tax advantages.
Private Placement Investments
High-net-worth individuals often invest in private placements, which are not publicly traded. These investments can offer tax advantages and higher returns.
“They typically require accredited investor status, but they can provide unique opportunities for wealth growth,” said Grunwald.
Tax-Loss Harvesting
According to Grunwald, wealthy investors engage in tax-loss harvesting to offset gains and reduce capital gains tax liabilities. By strategically selling investments at a loss to counterbalance profitable investments, they can minimize tax expenses and protect their wealth.
Family Limited Partnerships
Grunwald also mentioned, “The wealthy often establish Family Limited Partnerships (FLPs) to consolidate and protect family assets.”
FLPs can facilitate tax-efficient wealth transfer, reduce estate tax liabilities and provide a structured way to manage and pass down wealth to future generations.
Investing in Real Estate
Once they accumulate wealth, says Merry, many dive into real estate investment.
“Getting involved in property seems like a logical step after they’ve managed basic finances and have spare money,” he said, noting that investing in property offers several financial benefits such as steady income, rising property values, borrowing power and tax breaks.
Outsourcing and Delegating
“Wealthy people know their strong points and make the most of them,” said Merry.
They understand when it’s smarter to hand over a job to someone more skilled. They also recognize when it’s wiser to hire out tasks to free up their time.
“This is where it’s different for rich people,” he added. “Time is money for them, and time saved from outsourcing is money earned from prioritizing more profitable ventures.”
Using Coupons and Haggling
“It might be unexpected,” said Merry, “but I know a good number of well-off individuals who still clip coupons and bargain to get better prices.”
He added that in reality, families with an income of around $100,000 or more tend to use more coupons compared to those earning below $35,000. Merry recommends signing up for platforms that offer coupons or checking local papers and online sources so you can adopt this rich-people habit too.
Bulk Purchases
“My son lives in a rich neighborhood with his mom, so I happen to know a lot of rich people, and they definitely buy in bulk,” said David Bakke, finance expert at Dollar Sanity.
“Since they have plenty of cash, they’re definitely going to buy three bottles of Ranch dressing when it’s on sale or three tubes of toothpaste when it’s discounted,” he added. “You’ll probably see a 20-pound bag of rice in their cart if it’s on sale as well. And lots of rich folks belong to clubs like Sam’s.”
Amazon Prime
Bakke notes that many of the rich folks he knows are almost all Amazon Prime members.
“They shop online a lot because they like the convenience of delivery, and with free delivery on Amazon–that about says it all,” he said. “They also like all of the extras that come along with a Prime membership.”
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