How Millionaires Spend Their Money – Millionaires spend and save their money differently than you and me. They don’t spend exorbitant amounts on flashy cars and flashy houses, rather they invest it in things that, while possibly not as flashy, pay long-term dividends. With the right investments, millionaires can retire early and spend more time doing the things they love.
In order to become a millionaire, it helps if you’re a frugal person. Millionaires typically spend less than they earn and invest the surplus amount into things that will grow their wealth further.
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Habits of Millionaires
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
Daugs’ clients use credit cards that offer rewards for their spending. Many of them will put most of their day-to-day living expenses on a credit card that offers points or miles in return. Then they use these rewards to offset the cost of vacations or leisure activities.
And they always make sure to pay their credit card balance off in full every month to avoid incurring any interest charges or fees.
Another added benefit of using a credit card for most of their everyday expenses is that Daugs’ clients have a strong understanding of what it costs them each month to live their lifestyle. “This then proves to be extremely helpful information when helping them plan for their retirement goal and retirement expenses,” he adds.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, earn 5X points on air travel 10X total points on hotels and car rentals when you purchase travel through Chase Ultimate Rewards (after using $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 50,000 bonus points after you spend $4,000 on purchases in the first three months from account opening.
3. They pay themselves first
The habit of paying yourself first — also known as reverse budgeting — means you build a budget based on your savings goals rather than based on your spending and expenses. In doing so, you ensure that every month, money gets allocated to future you.
Daugs’ clients pay themselves first by systematically saving money via direct deposit from their paychecks, or as a recurring transfer from their checking accounts.
“Whether it be into their employer retirement plans, IRAs or general investment accounts, this is money they put away and invest with no intention of using it for day-to-day living,” Daugs says.
By saving first, Daugs’ clients are able to freely spend whatever is leftover, with the comfort of knowing their savings plans — both long- and short-term — are already taken care of.
“They live within these ‘net cash flow’ means and make every effort to keep all savings plans active and increase them on an annual basis,” Daugs says. “They do not dip into these investments for anything other than their intended goal.”
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:
- Tier one: In a simple money market or high-yield savings account.
- 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.
- 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
Most of Daugs’ clients try not to carry debt on things like cars or boats to avoid paying years of interest on something that quickly depreciates in value.How you can utilize rewards credit cards, too
However, they may carry a mortgage on their primary home. “This is especially true in this current low interest rate environment,” Daugs says.
He adds that still even now, most of these clients accelerate their mortgage payments to pay it off years ahead of schedule and thus reduce the overall interest they have to pay.
How Millionaires Spend Their Money
Here are the top five in order:
1. Travel
This was the overwhelming favorite with 60% of millionaires mentioning it. It also accounted for 36% of the total mentions.
This result is probably not a shocker to most people, especially those who read the series, since it comes up so often.
That said, even I didn’t expect it to win by this much.
But it makes sense. People like to travel in general and millionaires certainly have the funds to do so.
Let’s hear why millionaires like to spend on travel.
We’ll begin with this from millionaire 50:
We love to give each other experiences, not presents.
Our big splurge last year was to fly to Colorado, land at the highest airport in the country, Leadville, spend a week with friends hiking and biking in Breckenridge.
We then took a flying, day trip to Torrington, WY to experience the total solar eclipse. Two bucket list items in one trip.
Sounds like fun, right? Colorado is awesome and I like Breckenridge in particular.
Here’s another from millionaire 70:
Vacation is my big splurge.
I take a vacation every 3 months and I like to stay at really nice hotels across the Mexico, Caribbean and Hawaii islands.
I refuse to short myself on vacation time or accommodations.
I can really identify with the quality comment. I would rather go on one nice vacation than two where I had to stay in a hostel.
I don’t need to stay at the Ritz (and wouldn’t prefer it anyway), but do like the place we stay to be nice.
Next is this comment from millionaire 77:
I love traveling. I spend about $45k a year just on trips.
I love going to a new country, learning about a new culture, meeting interesting people on my trips and, of course, the beautiful beaches!
I love a good beach myself!
Perhaps I’ll get up to $45k spending on travel myself one day, but I suspect that $20k is more my limit.
Here’s a different take from millionaire 78:
We love cruises — in fact, the header image on my website is a photo I took of the ocean from a cruise we were on. I did mention that we’re naturally frugal though and it comes into play with our cruises as well.
We don’t just pick one and go. We dig around to find a really good deal, but we always get a balcony (once you go balcony, you can’t go back!).
We’ll find a cheap flight and stay at a cheap hotel the night before. We don’t buy any upgrades on the ship and very little in the ports. But we do love the experiences and will go to restaurants in the ports and eat and drink to our heart’s content.
It’s a balance that works for us and we never feel like we’re missing out. However, it’s something that might not work for everyone and that’s OK … to each his own!
This blends both travel and the desire to get a “good deal” which I can support 100%!
We’ve been on three cruises and like them a lot as well. I’m thinking a fourth might be in our near future.
And here’s a final thought from millionaire 95:
Vacations. In the last 15 years I have probably spent $20K-$50K a year on family vacations. My kids have been to over 35 countries and 5 continents.
Great times, experiences and memories.
The memories are priceless. Our trips are always among the most discussed memories in our family.
2. Food/eating out
This one was a bit of a surprise to me, but apparently millionaires like their fine food.
The combination of “food” and “eating out/restaurants” was mentioned by 35% of the millionaires and made up 21% of the mentions.
There were a couple different expressions of this answer.
Sometimes millionaires meant eating out and sometimes they referred to eating at home. I’ll give examples of both.
Here is a comment from millionaire 59 about eating out:
We both like to dine out and eat good food. This is our single biggest expense when it comes to ‘wants’ vs. ‘needs.’ Hedonism has a price.
And another from millionaire 68:
As I mentioned, food has never been scrutinized in our budget. It’s something I love way too much to compromise on.
We eat out more than we should and over grocery shop, but I’m okay with it.
And a final one from millionaire 81:
We also enjoy gourmet dining experiences; I don’t blink at spending $250/person for a meal every couple of months, but consider paying $60 for 4 of us to get hamburgers a total waste.
That must be some really good food for $250 a person!
Now let’s move to those who like to spend on food eaten at home:
Here’s millionaire 53’s comment:
Food is our favorite thing to spend on by far.
My wife is an excellent cook and we all have a lot of fun trying new recipes.
We also like our cookbooks (America’s Test Kitchen) and Pressure cookers.
And a similar one from millionaire 63:
The one thing we don’t skimp on is food and wine.
You’ll always find meats, cheeses, seafood, red wine, fresh fruits and vegetables, and lots of dark chocolate in our kitchen.
Yum! I want to head over there for a visit!
We’ll get to wine in a moment …
3. Cars
Pretty stereotypical that millionaires love their cars, huh?
But there’s a big drop off here from the previous two responses. Only 15% of millionaires mentioned cars.
Let’s begin our comments with a response most people would probably expect when they hear “millionaire” and “cars.”
Here are thoughts from millionaire 39:
I have a Ferrari, Porsche and old Corvette.
My philosophy is to enjoy my cars now because when I retire I will get rid of the exotic cars (keeping the old Corvette) as they do drive up my monthly expenses.
And another from millionaire 58:
I love German cars and always have 2 for myself.
I’m wondering what someone does with multiple cars? Drive them on different days? As it is, I only drive my car once a week or so these days!
What’s the point of wealth if you can’t treat yourself? From millionaire 67:
In addition, after driving a small import for about 14 years, I recently paid cash for my dream car: a domestic, convertible sports car.
Finally, here’s more of what ESI Money readers would come to expect from a millionaire car owner — having a great car but buying right and making it last. From millionaire 99:
Luxury cars … however, I keep them for a very long time and buy them pre-owned.
My rule of thumb is to get a vehicle 3-5 years old at about 50% the original MSRP.
I currently own a luxury SUV (16 years old) and a luxury car (11 years old). Together, they are still worth about $30k.
I normally pay cash for my vehicles, but I did get a 5 year loan on the car because the rate was 1.49% (paid it off this year).
My next vehicle will probably be a pre-owned Tesla and I will probably downsize to just one vehicle.
I can appreciate a good car, I just don’t think I’d like to own one. I’d be worried someone with an older car like me would ding it.
4. Wine
As promised, we’re now coming to wine.
Some say it’s hard to eat a great meal without a great wine, so you’d kind of expect this to be high on the list.
That said, only 9% of millionaires mentioned wine as a splurge.
Millionaire 48 listed it with the following:
I secretly would like to own a large wine cellar. That can become a very expensive hobby but we are trying to keep it in check by keeping it to one bottle a week and a few special occasions a year.
Good food and good wine are our secret splurge.
Millionaire 49 is a wine collector:
I have approximately 50 bottles of wine (nothing too expensive, I bought all of this while visiting wineries during our travels).
And finally a more frugal response from millionaire 85:
I enjoy the taste of good wine, and I do splurge on expensive bottles now and then.
I also like to save it and let it mature in my full size wine refrigerator.
Saving, aging, and anticipating is part of the fun, and it keeps me from drinking it too often which is good for both my health and my pocketbook.
I’m not a wine drinker but I’m sure many of you can relate to these thoughts.
5. Clothes
Surprised by this one? I go back and forth whether I expected this one or not.
Only 7% of millionaires mentioned clothes, so it’s not a big percentage of the responses.
Millionaire 41 left the following comment:
I also splurge on clothes, partly because of my management type job, partly because I like cute shoes!
And millionaire 79 agrees:
I love buying new clothes, especially when they’re driven by losing weight! Wearing a new suit to work with a new shirt and tie is exhilarating.
Uh, OK, we will have to agree to disagree.
Wearing a suit and tie anywhere is not exhilarating to me, but this is coming from a guy who wears shorts and athletic gear most of the year, so take my comments with a grain of salt.
Other splurges
There were many other items mentioned that didn’t make the top five. https://ef491b5d22d7a648397d0f4e5e570418.safeframe.googlesyndication.com/safeframe/1-0-38/html/container.html
Here’s where we get to see a bit of personality/diversity in the millionaire ranks.
All the other items mentioned are:
- Art/art supplies
- Bikes
- Boats
- Books
- Concerts
- Dark chocolate
- Firearms
- Gardening
- Golf
- Home
- Motorcycles
- Outdoor gear
- Skiing
- Sporting events
- Sports
- Tech
- Watches
Conclusion
“Wealth is a large, seamless web that can’t be reduced to a single strand.” T. Harv Eker Millionaires have their vices as well as any other person, but they don’t let those vices rule them. In the same way, they don’t allow their virtues to rule them either. Because to them, all things are equal. They have learned from those who have been there and done that before them. The millionaire’s playing field has been leveled. The race for wealth has become a race for knowledge and wisdom instead of a race to exploit others and it’s economy. Their time is spent mastering skills that build wealth rather than wasting it by trying to acquire more money that they probably won’t even miss