April 13, 2021

How Millionaires Spend, Save and Invest Their Money

Select’s editorial team works independently to review financial products and write articles we think our…

Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We may receive a commission when you click on links for products from our affiliate partners.

When it comes to managing your money, it’s natural to have a lot of questions: Are there expenses you shouldn’t put on a credit card? How much cash should you keep in your savings and checking accounts? When are you ready to start investing?

But personal finance is personal, and sometimes the answers to these questions aren’t straightforward. What works for one person won’t work for another. And it can sometimes seem like certain financial decisions are only reserved for the very rich.

Yet, we can also learn a lot from how wealthy people manage their money — and apply some of their good habits to our own lives.

Select spoke with Faron Daugs, certified financial planner, founder and CEO at Harrison Wallace Financial Group, about the smart financial moves he sees his millionaire clients making.

Daugs has more than 30 years of experience, and he’s seen his clients go through various economic events that impacted their money over the decades. But no matter what was going on with the economy or the markets, they stayed disciplined when it came to spending, saving and investing their money.

Here are five money habits of Daugs’ wealthiest clients that anyone can apply to their own finances.

1. They don’t overspend

If you have more disposable income, it’s easier not to overspend. Yet, it’s worth noting that even millionaires, including some of Daugs’ clients, still have frugal spending habits.

While these clients do enjoy some of life’s finer things, Daugs says they typically do not overspend.

For example, they’ll purchase a certified pre-owned car versus buying a brand new one; they will search for good deals on vacations; they may upgrade to economy plus on an airline but won’t pay for first class; they will keep their cell phones as long as they are working and don’t feel the need to upgrade every time new technology comes out.

2. They utilize rewards credit cards

How you can utilize rewards credit cards, too

The best rewards credit card for your wallet should help you earn rewards on the purchases you make the most.

For example, if you spend a lot on groceries, consider signing up for the Blue Cash Preferred® Card from American Express to earn 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).

Anyone planning to travel as Covid restrictions ease in the coming months should take advantage of the Chase Sapphire Reserve®, which offers luxury travel perks, a $300 annual travel credit, 3X points on travel worldwide and on dining at restaurants including eligible delivery services, takeout and dining out, plus a generous welcome bonus of 60,000 bonus points after you spend $4,000 on purchases in the first three months from account opening.

3. They pay themselves first

4. They keep an emergency fund at all times

An emergency fund is essentially a stockpile of cash that you can use in the short term for unexpected expenses.

Financial experts generally suggest setting aside three to six months’ worth of your living expenses in an emergency fund (Daugs’ clients typically maintain six to nine months). But just how much you choose to save is dependent on your individual income and comfort level.

Arguably as important as how much you save is where you save. Your emergency fund cash should be kept in a savings account that’s accessible and not at risk to the ups and downs of the stock market, but at the same time it should always be earning the highest return possible.

“In today’s low interest rate environment, it can be challenging to find reasonable return for these emergency funds in traditional savings accounts,” Daugs says. For this reason, Daugs recommends his clients follow a more productive “tiered” strategy when deciding where to put their savings:

  1. Tier one: In a simple money market or high-yield savings account.
  2. Tier two: In an ETF portfolio that invests in short-term maturity securities. “While these can fluctuate in value, they typically generate higher yield than savings accounts and the short-term maturity keeps potential fluctuation in [value per share] at a minimum,” Daugs adds.
  3. Tier three: In Buffered ETF investments. Since it is unlikely that Daugs’ millionaire clients will actually need their reserve dollars quickly, they utilize these Buffered investments that allow for potentially higher returns tied to a market index, such as the S&P 500 or the Nasdaq, yet offer some degree of downside risk protection, aka a “buffer.”

How you can be strategic about saving for your emergency fund

In Daugs’ tiered strategy, each tier takes on a bit more risk as you progress from tier one to tier three. This strategy is only recommended for those who have more risk tolerance; otherwise, stick to a high-yield savings account that is FDIC-insured and offers an above-average interest rate.

Select’s top pick is the Marcus by Goldman Sachs High Yield Online Savings. Marcus offers no fees whatsoever and easy mobile access. It is the most straightforward savings account to use when all you want to do is grow your money with zero conditions attached.

5. They are strategic about carrying debt

Bottom line

Of course, millionaires come to the table with more disposable income and resources than the average American. It’s easier to save when you don’t live paycheck-to-paycheck. That said, these 5 financial habits are straightforward and can be good guidelines that anyone can follow.

No matter where you are on your own financial journey, establishing smart money habits early on can help as you navigate how you want to spend, save and invest your cash.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.