There are various approaches to accumulating wealth, and it’s important to recognize that get-rich-quick schemes and high-risk investments are not necessarily the most effective or reliable methods.
In fact, individuals who have achieved remarkable wealth, such as the ultra-rich, often emphasize the importance of consistently and steadily managing their bank accounts, particularly their checking accounts.
Here are a few strategies employed by the truly wealthy to grow their wealth.
1. They hold only spending money in their checking bank account
While checking accounts at banks may offer some interest, the rates are generally lower compared to other investment options like savings accounts or certificates of deposit (CDs).
To optimize your financial management, it’s advisable to keep only a sufficient amount of cash in your checking account to cover one to two months’ worth of expenses, along with an emergency fund as a buffer. By transferring the excess funds into a high-yield savings account, you can effectively control your spending while ensuring that your money generates a more significant return.
High-yield savings accounts typically offer higher interest rates, allowing your money to work harder for you. This strategy not only helps you stay within your budget but also maximizes the potential growth of your hard-earned cash.
2. They use multiple checking accounts
The extremely wealthy frequently employ a strategy of dividing their funds across multiple bank accounts, each serving a specific purpose. For instance, they might maintain separate accounts for investing, daily expenses, and emergencies.
If you find it challenging to adhere to a budget or desire to enhance your savings approach, you can adopt a similar tactic. By using different checking accounts for distinct financial purposes, you can effectively manage your money and minimize the risk of unintentional overspending.
One approach is to designate one checking account exclusively for recurring bills, such as rent or mortgage payments, utilities, and other fixed expenses. This account serves as a dedicated reservoir for meeting regular financial obligations, ensuring that you always have sufficient funds available for essential payments.
Additionally, you can maintain a separate checking account to cover variable expenses, including discretionary spending, entertainment, and non-essential purchases. By allocating a specific account for these fluctuating expenses, you gain greater visibility and control over your discretionary spending, reducing the likelihood of exceeding your intended budget.
3. Rich people would rather keep their money in investments
Although the ultra-wealthy have expenses to cover, they tend to employ strategies that differ from simply keeping their cash in a checking account. One common approach involves investing in financial instruments such as Treasury Bills, which can be liquidated for a profit and reinvested periodically.
Prominent investors like Warren Buffett maintain multiple money market accounts and heavily invest in Treasury Bills. These individuals recognize that idle cash sitting in a checking account may not generate significant returns and may even be subject to inflation eroding its value over time.
By investing in Treasury Bills, the ultra-wealthy can potentially earn a return while maintaining the flexibility to access their funds when needed. Treasury Bills are short-term debt securities issued by the government, typically with maturities ranging from a few days to one year. They are considered low-risk investments and are often seen as a safe haven for parking excess cash.
This investment strategy allows the ultra-wealthy to constantly rotate their cash and take advantage of potential profit opportunities. They can sell Treasury Bills as they approach maturity and reinvest the proceeds into new bills, ensuring a rolling investment cycle that helps maximize returns.
4. Rich people hold their money where it is treated best
When you first opened your checking account, did you carefully consider your choice of bank, or did you opt for the one suggested by your parents or the nearest branch to your home? If the latter is true, it may be worthwhile to reassess your banking options.
In general, the ultra-wealthy exhibit a higher level of selectiveness when it comes to choosing their banking institution compared to the general population. They prioritize factors such as avoiding annual fees, receiving excellent customer service, and gaining access to attractive rewards programs. If your current bank fails to meet these criteria, it might be advantageous for you to explore alternative banking options that offer more appealing perks for being a customer.
First and foremost, take a closer look at any annual fees or charges associated with your current checking account. The ultra-wealthy understand the importance of minimizing unnecessary costs, and they actively seek out banks that do not impose such fees. If your bank imposes an annual fee that feels burdensome, consider switching to a financial institution that offers fee-free checking accounts, allowing you to maximize the value of your banking relationship.
Additionally, consider the level of customer service you receive from your current bank. The ultra-wealthy prioritize excellent service and expect prompt, personalized assistance whenever needed. If your bank falls short in this regard and fails to provide the level of support you deserve, it may be worth exploring other banks known for their exceptional customer service.
Moreover, evaluate the rewards and benefits offered by your current bank. The ultra-wealthy understand the value of maximizing their financial relationships and often seek out banks that provide attractive rewards programs, such as cashback incentives, travel rewards, or higher interest rates. If your current bank does not offer compelling rewards, consider switching to a financial institution that provides more enticing perks.
