Learning from the Wealthy

They say that imitation is the sincerest form of flattery. If you long to be rich, try imitating rich people-not how they spend, but how they save and invest.

Following the lead of wealthy people can add some richness to your own life, as long as you know where to draw the line. Donald Trump, for example, used investing savvy and calculated risk to build an empire. On the flip side, Leona Helmsley didn't pay her taxes, and got thrown into jail. Today's lesson is about emulating The Donald, not Leona.

How the other half live

Rich people live differently. Contrary to popular belief, most wealthy folk don't go around spending money that they don't have. The cash they're using on expensive homes and luxury vacations is actually money they can afford to spend, not money that they should be sending to their credit accounts. That's not the only thing that makes them different. Rich people also:

• Own businesses. The entrepreneurial spirit can create fortunes. Numerous surveys and studies indicate that wealthy people own businesses, and that these assets comprise a large percentage of their total net worth.
• Own real estate. More than 90 percent of high-income individuals own real estate. Further, data from the Federal Reserve indicates that 40 percent of those rich property owners have second homes or investment properties, too.
• Invest in stocks, bonds, and retirement plans. Marketable securities, retirement accounts, and annuity plans make up the bulk of the average rich person's total assets. They generally don't have hundreds of thousands of dollars on deposit in banks, or even in online savings accounts; they're invested in stocks, bonds, and mutual funds. If you want to know why this is the case, calculate the difference between a 3 percent return on $3 million and a 10 percent return on the same amount.
• Support charity organizations. Wealthy people offer their time and money to charitable organizations. This greater level of giving might be motivated by compassion, or it might be motivated by tax savings. In either case, these givers (and their charities) are reaping the rewards.
• Avoid gambling. In The Millionaire Mind, author Thomas J. Stanley, reporting results from his survey of more than 1,000 people who earn $1 million or more each year, says that none of his respondents had "anything nice to say about gambling."
• Stay away from credit cards. When the affluent use credit cards, they do so out of convenience, not out of necessity. Apparently, when you have excess cash, you can pay your balance off every month and avoid high finance charges. That's not to say that the rich don't borrow-they do. But they use debt for more strategic purposes, such as buying investment property or funding a business expansion. Donald Trump is the perfect example of this; his wealth was built through financing, but not the kind that you can get on a plastic card.