5 Savings Roadblocks That Rich People Overcome

Saving money is the key to building wealth.

The rich rely on their massive cash savings to invest in businesses, real estate, equities, art and anything else with the potential to make them even richer and keep more money coming in — and none of that is possible without a bursting bank account. 

Tips: Money Expert Rachel Cruze Shares 8 Tips To Save Money Every Month
Find Out: How To Get Cash Back on Your Everyday Purchases

According to CNBC’s 2023 Millionaire Survey, more than one-third of households with at least $1 million in investable assets now keep about one-quarter of their wealth in cold, hard cash — the lifeblood of the 1%.

But saving isn’t so easy for the lower 99%.

A new GOBankingRates study of more than 1,000 people identified five primary roadblocks that prevent the masses from socking away enough money to join the millionaire class in amassing portfolios of wealth-generating assets that switch their incomes to autopilot.

Here’s how the rich get around the savings obstacles that snare so many others.

Low Income

Not making enough money is the No. 1 roadblock to saving, with 38% of the study’s respondents reporting that they simply earn too little to save efficiently.

The rich avoid that problem by taking the employer out of the equation and generating income that they can control.

“Wealthy Americans are usually good at leveraging their time,” said consumer finance education specialist Noah Gomez, founder of Thick Credit. “This means they keep costs low in order to invest in income-generating assets rather than make money by trading their time working for a salary.”

According to a recent report from the Federal Reserve Bank of St. Louis, the bottom 90% earn 80%-90% of their lifetime income by exchanging their labor for wages. On the other hand, the wealthiest 0.1% get 83% of their combined earnings from capital gains and other equity assets — not from working.

Read: Jeff Bezos’ Advice for Millennials Who Want to Get Rich

Overwhelmed With Bills

The next biggest group of respondents is the 22% who said their bills are so expensive that they can’t save a significant amount of money.

When you see their sprawling mansions, exotic cars and fast lifestyles, you might assume that the rich, too, have enormous bills. They do, compared to you — but not compared to their incomes.

“While the rich may have relatively high bills, they typically avoid living above their means and being unable to pay themselves first,” said Laura Adams, MBA, an award-winning personal finance author and expert with Finder.

In April, money guru Dave Ramsey — a member of the GOBankingRates 100 Most Influential Money Experts list — released the results of the National Study of Millionaires, which Ramsey called “the largest survey of millionaires ever.”

The study, which polled 10,000 wealthy people, found that 94% live on less money than they make.

That characteristic — living within your means — is what Bogart Wealth calls the primary difference between rich people and wealthy people. The intergenerational wealth planning firm wrote, “A financially rich person might have a significant income right now while living a posh lifestyle and blowing through much of their money on material items. A wealthy individual, on the other hand, enjoys a more sustainable lifestyle made possible by the accumulation of assets and investments.”

Excessive Debt

Instead of earning interest on their savings deposits, many people are paying interest to creditors — 11% cite excessive debt as the No. 1 hindrance to saving money.

It’s not that the rich don’t borrow — quite the contrary, they tend to borrow much more heavily than ordinary income earners — but they use debt strategically to their advantage. 

“While the rich usually leverage debt, such as mortgages and business loans to build their net worth, they typically never accumulate high-rate consumer debt,” Adams said.

The Rich Use Credit in Their Favor, Not the Bank’s

A report from the Motley Fool confirms Adams’ assessment that mortgages are a primary reason why the rich typically hold much more debt than average earners. Because they’re more likely to be approved for loans, the wealthy are much more likely to be homeowners than lower earners and, therefore, hold more housing debt in the first place.

They also tend to take out much bigger home loans for much bigger homes — but they offset those expenditures and subsidize their housing costs by claiming the mortgage interest deduction at tax time. Anyone can take the deduction, but you have to itemize to claim it, which — thanks to today’s high standard deduction — usually makes sense only for wealthy households with lots of hefty write-offs.

The rich also use what Forbes calls the “buy, borrow, die” strategy to leverage credit to their advantage. They use securities-backed lines of credit (SBLOC) to borrow against their portfolios at low interest rates and use the credit to fund their lifestyles without selling their securities. Upon their deaths, their heirs receive a stepped-up basis and can sell the stock portfolios without paying capital gains taxes.

Impulse Shopping Gets in the Way

Another 11% said impulse shopping is the biggest barrier to reaching their savings goals.

The urge to buy unnecessary things on a whim without thought, research or comparison shopping does not discriminate by tax bracket. But the rich — at least those who are self-made — build wealth through years of financial discipline.

As previously stated, 94% of them report living within their means, which is simply not possible if you spend money according to fleeting desires.

“Although having a higher income can certainly help in amassing wealth, a key factor for the rich is their ability to live below their means,” said Steven Wright, a personal finance and lifestyle consultant and co-owner and chief editor of money and lifestyle publication Lifestyle to the MAX. “They prioritize­ savings by carefully managing their budget, making wise­ investment choices, and consistently growing their income through strategic care­er moves or successful e­ntrepreneurial e­ndeavors. Impulse buying can have detrimental effects on one’s wealth regardless of financial status. Many successful individuals implement a ‘cooling-off’ period before making substantial purchase­s.”

Lack of Knowledge

The smallest share, just over 4%, said their biggest obstacle is a lack of knowledge — they simply don’t know the best way to save money.

For the rich, knowledge is an investment, not an attribute.

The richest of the rich establish family offices — private companies that provide dedicated wealth management, legal and investment services to a single household or, in the case of multifamily offices, a select handful of clients.

But even wealthy people that haven’t reached the billionaire class almost never go it alone.

“The rich typically seek education and various professionals, such as financial, tax, retirement, and estate planning advisors, to ensure their savings and investments achieve their overall financial goals,” Adams said.

Unlike financial planners and advisors, which anyone can hire, the rich turn to wealth advisors — or wealth managers — who focus solely on high-net-worth people and households for services like:

  • Asset and cash management
  • Investment planning
  • Estate planning
  • Tax planning
  • Philanthropic strategies
  • Succession planning

They typically require investments in the millions, but they leverage their expertise and experience to help the rich get richer. When you’re wealthy, you don’t need to have deep financial knowledge. It — like everything else — is for sale.

Methodology: GOBankingRates surveyed 1,037 Americans aged 18 and older from across the country between September 5 and September 7, 2023, asking five different questions: (1) How much money do you hope to save in the next year?; (2) What are you saving money for?; (3) How many savings accounts do you have?; (4) What is the primary method you use to save money?; and (5) What is your biggest roadblock/challenge in trying to save money?. GOBankingRates used PureSpectrum’s survey platform to conduct the poll.

More From GOBankingRates

This article originally appeared on GOBankingRates.com: 5 Savings Roadblocks That Rich People Overcome

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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