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By: Rory Gilbert

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November 25th, 2015

Three things rich people do

Recommended | Financial Education

[Estimated time to read: 5.5 minutes]

Three things rich people do

...and why they are like farmers

They say the rich are different – perhaps driven by envy, misunderstanding or perhaps it's true.  What's pretty clear is that the rich don’t stay that way if they aren't smart about what they do with their money. 

We've all known people we thought were wealthy and successful but who suddenly, unaccountably, fall on hard times. It turns out that lots of people living flashy lifestyles (jewellery, expensive cars, flashy holidays) aren't at all wealthy, and are funding their lifestyles with unsustainable borrowing. 

We're not actually talking about them – we're interested in understanding those families who got rich, and have cracked the code of how to stay that way. 

You might be surprised – few rich people think of themselves as 'rich' – after all, like all of us, they know lots of people who are even richer than them.  As a firm that looks after people with lots of money, and others with a bit less, we believe there's a lot that the rich do that we can learn from and copy. 

The first thing they do is to avoid disasters. The best way to do this, they have found, is to have a basic plan on how to invest:  this captures how much they have, where they have invested it, and they are careful with the risk to which they expose their wealth. 

Key to avoiding disasters though is not making dumb investments. Dumb investments are different to merely bad ones – a dumb investment is the one where, with hindsight, you ask yourself 'what was I thinking?'.  It's normally driven by greed or inattention to detail and it’s the sort of thing where we kick ourselves afterwards – it was all too good to be true. 

Second, they are unreasonably picky about who to trust, and are suspicious of anyone attracted, like bees to honey, by their wealth.  The rich, because they're rich, know that there are armies of thieves, crooks and conmen out there looking for a way to liberate them from their wealth.  It might seem unfair, but these types don’t wear stripy tops, masks and carry big bags marked 'swag'.  Some of them look, and sound, just like you and me. 

The third thing that the rich get right is in living within their means:  knowing how much they can afford to spend, and sticking within that limit.  They see their wealth the way a farmer looks at his land, and his livestock:  something that requires attention and skill and needs to be carefully managed, but which will generate a return if looked after.  Their wealth isn’t for spending – it’s for management and nurturing and passing on to the next generation.

All of this means that they do some basic things that all of us can copy:  there are three main lessons, and all of us, rich or aspirational, can apply them:

1. Avoid disasters:  don’t do dumb stuff, and avoid things that seem too good to be true – they almost certainly are;

2. Be careful whom you trust:  most people trying to sell you stuff are doing so for their benefit, not yours; and

3. Understand how much you have, and how much it will yield you:  and don't harvest more than your wealth can sustain.

Of course, there's lots more that the wealthy have learned, and we'll be happy to share our insights.  Contact us to explore this with one of our advisers.

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P.S If you want to kick start your journey to becoming an expat millionaire, download our ebook below.

Image credit: OnInnovation via Flickr

About Rory Gilbert

Rory Gilbert was formerly employed by AES International.