10 Things That Rich People Supposedly Do

There is an article over on Marketwatch title 10 Things Rich People Know That You Don’t. It is complete and utter garbage. Articles like this are one of the reasons I started Finance Gourmet. They give the impression that there is a trick to money and wealth, while throwing out meaningless advice. It not only doesn’t help, it makes people feel worse because it feels like they are not rich because of something they are doing, when that isn’t the case.

The subtitle is that people don’t become wealthy by accident, and here’s how they do it. That’s a lie too. There is nothing in this article that tells you how people become wealthy, unless you count a guy retiring with a nice 401k as wealthy. But wait! You can stoop even lower for a few extra clicks. The URL for the article ends in 10-habits-of-high-net-worth-women, and it is even LESS about that.

First, let’s start with the basic premise that rich people know something you don’t, and that’s why they are rich. This is just not true. We love to think that there is some sort of insider secret, or conspiracy, that if you could just figure it out would lead to riches. There must be a rich people secret society that is keeping regular people out!

It isn’t true. There is no secret. Rich people have more money either because they inherited more, saved more, or they earned more. That’s it. There is no way to turn someone with a $45,000 salary into a rich person, unless that person saves all their money, for all their life. Of course, that doesn’t stop people from milking the secrets of the rich concept for big money, which is ironic, because shouldn’t they be using the secrets that they know to get rich instead? That would be easier.

Let’s break down the ludicrous banality in this article about what the rich know that you don’t.

Things Rich People Know That You Don’t

First up, is “start early.” As in, start saving in your 401k, or Roth IRA, or whatever early.

What?!

This is the laziest possible thing to say about how to build wealth. For starters, this is not a secret from ANYBODY, let alone the rich. You have no doubt already heard this hundreds of times. So, it’s most definitely not something that can be remotely considered a secret. Next, this isn’t going to make you “rich.” Compound interest takes a really long time to work, no matter when you start. Even the example the author gives screams This won’t make you rich!  I mean if you consider investing $10,000 and letting it grow for 40 years and ending up with $217,000 as “rich”, you and I have very different definitions of the word.

Saving money into your 401k will eventually give you a nest egg that lets you continue living approximately the same lifestyle you were living all along, not some new higher-level wealth. In other words, if you save into your 401k for your whole working life, you will get to have a nice retirement but you not be “richer”.

Next comes “Automate.” Yes, you should use this super-secret, rich only, knowledge to do automatic contributions to your 401k, IRA or savings account. Just like auto bill pay! Whew! I can’t believe the rich people mafia let that secret get out.

Now we get “Maximize Contributions.” Yup, the only thing less likely to be considered a retirement planning secret than starting early would be maximizing contributions.

No credit card balances. Seriously? If you are rich, you don’t need this secret. Heck, rich people don’t even need credit scores to get loans, they use collateral. If you are not rich, this will not make you richer. It may keep you from getting too much debt, or getting poorer, but it is not a secret at all, and certainly not a rich person’s secret. You see, if you are actually rich, your accountant or money manager will  handle this for you. In fact, this might be a poor person’s secret for not staying poor.

Live Like You’re Poor – This is just a different way to say save more money by living beneath your means. Oh, if only that could actually make you rich. The best part, is the author knows its a lie. See that part about the “older client” who drives an old beat up Volvo station wagon? It made him rich, right?

No! What made him rich, was he was, “an uber-successful entrepreneur…” So, what this article really is about is that even though he got rich SOME OTHER WAY, but, he lives like he’s poor, so that makes… yeah, I don’t get it either.

This would be an actual secret: How do you get to be an uber-successful entrepreneur? That would actually have a chance of making you rich, but that isn’t one of the secrets from this article.

Avoid Temptation – A good writer (or editor) would realize that this is redundant. How are supposed to live like you are poor (the previous “secret”) if you are keeping up with the Joneses or spending money on other temptations? It’s not only not a secret, it’s the same thing as the previous non-secret. Somebody must have been trying to hit their word count for the article here.

Be goal oriented – This is definitely good advice, but I’m pretty sure someone has been telling you this since you were 5 years old. Hardly a secret of the rich, though.

Get Educated – And, by educated they mean study finance, like subscribing to the Wall Street Journal. That’s odd. If you started early, maximized your contributions, and automated, like above, what exactly will the Wall Street Journal help you with? Education is great, and understanding finance and money is crucial to success in life, but is education a secret? Is it something rich people do? Do you think Paris Hilton or any of the Kardasians are rich because of education?

Diversify your portfolio – Yep. Not a secret, and perhaps the single most common piece of investing advice ever. Also, it won’t help you get rich. Your long-term investing contributions will eventually give you a nice portfolio. It won’t make you rich, though, unless you are already knocking on the door.

Spend Money to Make Money – Wait. I thought we were supposed to live like we were poor? By the way, the “secret” here is to hire financial professionals. That’s a secret? Do you think that poor people don’t know about accountants?

What Rich People Actually Know

So, what is the actual secrets that rich people know?

There are two of them.

One, most rich people actually inherited their money. You know all of those tips above about starting early and maximizing contributions? That works even better over multiple lifetimes.

The second (unless we are talking old money) is that it takes money to make money. You see, saving a little money every year can eventually (several decades) make you rich. It will happen a lot faster, however, if you are saving a lot of money every year.

Some doctors and attorneys are rich not because of secrets, but because their salaries are high, and many of them own part of their practice (a business).

Silicon valley entrepreneurs are rich because they started businesses or got stock options. Not one of them is rich because of their 401k or because they lived poor, or automated their savings, or started early, or because they hired financial professionals. They are rich because they started a business that was successful.

Wall Street executives and bankers are rich because of high salaries and big bonuses, not because they “started early” saving in their 401k plans.

If you want to be rich, there are two ways to make it happen (without inheriting). Either start your own business, or invest money, lots of money. Or find, and take a big, profitable risk. The people that turn $10,000 in a $1 million don’t do it with salary reductions, they do it in risky investment propositions. Maybe that’s way rich people know that you don’t, how to find, or create, those kinds of opportunities.