Do you ever wonder what life is like for the rich and not-so famous? Do you wonder how they invest their money? Do you wonder about how they made their millions or what secrets they might have for you to benefit from?
Well today is your lucky day as I am going to share the insider details.
For a few years, I worked for a high net worth investment planning firm. To be considered a client, you needed to have at least $2 million in investable assets. What does this mean?
It means you have to be able invest $2 million with us, in some combination of retirement and non-retirement accounts. Don’t get this confused with net worth, as net worth has nothing to do with investable assets.
In total, we had over $500 million under management. I mainly worked on building the plans, so I got to know the intimate details of our clients. I knew the things that most other people would never know about these people. Like how much they really spend, earn and save.
So what did I learn from dealing with the rich? I list the most interesting insights below. Some things may seem obvious to you while others will surprise you. Hopefully, you will learn something and be able to apply it to your financial life.
Priceless Lessons Learned While Working With The Rich
Financial Lessons Learned
Most of our clients were self-made millionaires. Very few inherited their money. The majority were doctors, a good many owned their own business, and a few were executives in various size companies.
In fact, one worked for Kellogg’s, the cereal company. Every holiday season he would bring us boxes of cereal!
Another worked at a pretzel factory and we would get pretzels from him. Finally, another worked at Clif Bar and we got a ton of those too.
Interestingly, many of the clients who inherited their wealth were going broke because they couldn’t control their spending. It just goes to show you that you need to understand how to handle money if you want to be rich for the long term.
If you are horrible with money, regardless if you inherit it or you win the lottery, odds are you are going broke sooner rather than later.
The doctors had a ton of debt and very little non-retirement savings. In fact, most of them had a good-sized retirement account and nothing saved outside of it. They also mainly had huge mortgages (close to $1 million in debt!) and drove fancy new cars.
Those who owned their own businesses would never be picked out of a line up as being a millionaire. One client would wear shorts and a Hawaiian shirt all the time, even in the winter. He was worth over $10 million.
Many lacked proper insurance coverage. I guess this is because insurance is boring and most people overlook it. But having adequate insurance coverage is huge if you plan on keeping your wealth. If you are only worth $50,000 you don’t need $4 million in insurance coverage, but if you are worth $4 million, you better have more than $50,000 in insurance coverage!
Learning to keep your spending in check is extremely important. We had one client who spent $40,000 a month. But she was worth over $30 million so she was OK with spending that amount. Others were not so fortunate.
We had one client who sold a business and the deal paid him $700,000 a year for the next 7 years. His final installment was a few years before I started at the firm. By the time I left, he was broke because he couldn’t control his spending.
It reminded me of professional athletes who go broke. They think the gravy train will never end, so they never really plan to save and invest their money. When the ride ends, they keep spending as in years past. Before they know it, they are in debt up to their eyeballs.
Those who followed our philosophy of buy and hold investing did well. In fact, most earned back the money lost from the market crash in 2008 by mid-2011. We did have one client though that didn’t do so well.
He was a trader and would make all kinds of trades based on his hunches or fears. His portfolio was always down while his wife’s, who followed our advice, was usually doing well. He questioned why her returns are always so much better than his. He didn’t like the answer that it was because his hunches were usually wrong.
Non-Financial Lessons Learned
While the above lessons were mainly financial, I did learn a lot of non-financial things too. The biggest was that to be successful, I was probably going to fail. I need to learn to get over failure and get back up on the horse as they say.
A good many of our clients told stories of their failures but added in how it eventually led to their success.
I also learned that experiences are more important than things. Our older clients would talk at length about family trips and vacations they would take with their kids and grandkids every year. They never talked about the new flat screen TV or the cool memory foam bed they just bought.
It was all about experiences that made them the happiest. In fact, one time an older client of ours left his eyeglasses in our conference room. Since he lived close by, I offered to drop them off when I went out to lunch.
I was shocked when I walked into his house. He lived like I did when I was in college. His house wasn’t huge and it didn’t have every fancy gadget or contraption that most people have. He lived a simple life. I guess when you don’t spend on things to appear to have wealth it is easy to amass a $20 million dollar fortune.
Summing It All Up
To recap, here is a bullet list of the things I learned:
- You can be successful and wealthy doing anything. You just have to work hard and put in the time.
- You may become rich overnight through an inheritance or by winning the lottery, but if you have crappy money habits, you will be right back in the same financial spot as before or even worse.
- The typical signs of wealth, cars, boats, houses, etc., are the signs of the uber wealthy. The true rich cannot be picked from a line up. They live frugally, save and invest their money.
- A long-term investing strategy is one that will make you a successful investor. If you try to time or beat the market, you are going to fall on your face.
- Accept failure. If you are going to be successful at anything in life, you are going to fail a lot. The sooner you can accept it and learn from it, the better off you will be.
- When spending money, spend it on experiences, not things. The memories are priceless.
Final Thoughts
Overall, I loved the job. Just about all of our clients were down to earth and great to spend time with. I learned a lot just by being around them and learning how they became wealthy. The biggest lesson though was that being wealthy wasn’t all about the huge houses and fancy cars, etc.
It was about retiring by the time you are 50 and traveling, spending time with your children and grandchildren and enjoying life. That is what most of the small business owners did.
But with that said, I would be lying if I didn’t drool and get a little (OK a lot) excited when one of the doctors would pull up in his brand new Porsche 911. After all, everyone deserves one toy, right?
[on sudden money] “… if you have crappy money habits, you will be right back in the same financial spot as before..” Couldn’t agree more with this Jon. Money really helps expose the values we hold dear.
That and if you never address the real issues, you will never get to the real cause. This means you will just end up in the same cycle forever.
Good advice all around. I can’t wait to be one of those guys in the line-up that you’d never guess was a millionaire.
I hope to be standing next to you!
Being a hard worker really pays off. I liked you summary Jon. I definitely agree with memories and experiences. These are more important than money, for me.
Being a hard worker and making sure you ask for a raise. Too many people think the company will just take care of them when nowadays that is becoming more and more rare.
Thanks for sharing. Those stories are just what I expected. The really rich people should live large and help prop up the economy a bit. Spending $40k per month is living well below her means for that example.
I remember looking over her statements and was blown away at her monthly spending. But when I completed the analysis, it showed she would be fine spending this amount all of the time.
All good lessons, but the one I think many people forget about is insurance coverage. Just like budgets and goals and asset allocations, insurance must be updated as things change over time. Great post!
I think everyone overlooks insurance. Maybe because it is boring? Or maybe most just don’t think bad things will happen to them. I’d love to understand why it is so often overlooked.
Good read! I always love some stories about the rich. Keeps me inspired about my goals!
Working with them definitely inspired me. I would see the size of their balances and work work hard so that one day I could have that balance in my account!
Jon,
This was a real fun article – I am going to be one of those “secret” rich folks! That’s always been my dream 🙂
Sounds good to me!!
Having read the millionaire next door and millionaire mind, it was nice to see you reaffirm what was mentioned in the book. Most millionaire’s I know are very generous people that anyone would love to have a cup of coffee or a beer with. Few flaunt their wealth and those that do give society a bad impression of wealth.
Jason
Jason, everything I saw from our clients basically reinforced The Millionaire Next Door/Millionaire Mind. It was refreshing to see them as good people and not greedy slimeballs.
Wish I could say that I’ve gained such meaningful lessons from the job I slave away at. The good thing is that I have started learn these lessons, especially from fellow PF bloggers, so that I can leave that job and truly start living!
There are always lessons, you just have to look around a bit sometimes to find them. Glad to hear though that in the meantime you’ve learned from other bloggers!
I agree that if you are horrible with money, you will eventually go broke. It took me a long time to see that happiness with money comes from experiences and the freedom to do what you want, not the newest gadget, car, etc… Fortunately, my wife is great with money and has helped me see how to properly handle finances. 🙂
I learned that too early on in life. I’m glad I did because it has allowed me to live life and not let money control me.
Thanks for sharing. I wasn’t surprised to hear that you can tell the appearance of some high net worth individuals. These individuals achieve high net worth by being frugal. Those who have fancy cars and houses probably don’t have as high net worth.
Many of the people we “think” are rich really aren’t. We just see the super rich on TV and think that is how everyone with money lives, but it isn’t.
Most people that are truly rich, don’t need to show it off. It’s the 30k millionaires that flash. Experience definitely trumps stuff (except maybe my flatscreen…)
I agree Adam. The ones you see flaunting it are usually the ones that have more than they know what to do with, so they go buy toys. The rest of the rich live a modest life and enjoy their wealth more privately.
Great post and some good lessons. I try to live within my means by saving 20% of our net income. I figure we can do this for the next 10-15 years we’ll be in good shape for early retirement.
It’s great when you have a job where you can learn valuable money lessons through your clients. This post is right on point!
Wow, I would love that kind of a job. I think you would get to meet a lot of really interesting people. Just like that guy you mentioned who walked around in a Hawaiian shirt and shorts all year, I certainly wouldn’t have guessed he was worth 10 million. And I think it’s amazing to see how people like doctors who make a ton of money can also be really financially irresponsible.
Thanks for your insightful article about what can help individuals make steps towards being financially successful. You make a great point about how many individuals that do well financially often own or start their business. My dad started his how civil engineering firm while I was growing up. We saw some very lean years while it was getting off the ground. However, once he was more successful, he started to put his money to work for him by investing and other asset management opportunities. Knowing the difference between and asset and a liability can help you use your hard earned money more effectively.
Great article, I loved reading it. I’m on my way to amassing a small fortune from my business based on trading (talk about hunches at all) and I enjoyed reading your assessment of all the people who came your way.
Experiences is what I hope to be super rich in.
This is some great insight into the spending habits of the wealthy – sometimes we expect the rich to be a monolith, spending the same amount on the same items, but that couldn’t be farther than the truth. Thanks for sharing the lessons you picked up!