Rich Client/Poor Client Lessons
In my 35+ years consulting with clients, I’ve had a front-row seat "in the room where it happens" with access to the most intimate details of my client’s finances. Although I NEVER kiss and tell, I would like to share some general habits/strategies that my "rich" clients do, and my "poor" clients do not.
I am using "rich" vs. "poor" as an oversimplified way to make a point, borrowed from one of my favorite books, Robert Kiyosaki’s Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!
For purposes of this email, let’s define "rich" as someone who has a net worth (defined as what’s leftover after liquidating all assets and paying off all liabilities) of at least $1million, and "poor" as someone below that level. No other value judgments or esoteric interpretations of rich vs. poor - that’s for another time
The following are a few examples of what all of my rich clients do, and what my poor clients do not. I will be doing a deeper dive in Episode #004 "Rich Client/Poor Client: Lessons From the Front Line" in the upcoming AMA Weekly Strategy with Q+A Sessions, so join now to learn more, or log in to the library and register for the session if you’re already a member.
Rich Clients vs. Poor Clients - Habits and Strategies
RICH CLIENTS DON’T USE DEBIT CARDS: I outlined exactly what my rich clients do, and why, in a previous newsletter, Use This Credit Card Strategy For Clarity. Check it out for more details - I use this strategy myself and have helped many clients do so as well. I am listing this first because it is the simplest thing to implement regardless of your financial situation. This strategy can exponentially simplify your life and elevate your financial management (as well as protect your privacy!)
RICH CLIENTS DON’T GET TAX REFUNDS: In last week’s newsletter, HAVEN’T FILED YOUR 2020 TAXES YET? Don’t Stress! You Still Have Time! I shared how your tax strategy as a business owner is VERY different than as an employee. As a business owner you have more control over taxation, but strategy is key!
My rich clients engage a team of advisors and implement and assess a strategy during the year to ensure they are "aggressively honest" and paying only what they owe. At tax time when their final return is filed, they usually owe a small amount which means their advisors did a good job of estimating the taxes, so, in effect, they did not significantly over or under pay during the year.
On the other hand, my poor clients get excited when they get a refund at tax time. Getting a tax refund usually means two things: 1) you had no strategy (and no clue) what you should have paid in during the year so you had too much withheld from your paycheck, and 2) you just gave the IRS use of your money, interest-free. Rich clients know the power of deploying money in ways that generate more money. Letting the IRS use it interest-free is not one of them!RICH CLIENTS BUY ASSETS AND HOLD THEM IN A TRUST: In his book Rich Dad Poor Dad, Robert Kiyosaki talks about how rich people buy assets and poor people buy liabilities. Simply put, assets put money in your pocket (rental properties, cash-producing investments, cash-producing businesses), and liabilities take money out of your pocket (cars, boats, clothing, random spending).
We all purchase a certain amount of liabilities, but if you consistently spend more money on those instead of assets, you will be (or are) technically poor. It’s all in the numbers. If you don’t know your numbers, you need to take my Quickbooks Online Master Course!
So how do rich clients "own" their assets? In a trust. There are several types of trusts available depending upon the type of assets you have (this includes bank accounts, businesses, homes and properties, etc) and also how you want the assets to transfer to your heirs upon death. Just know that ALL of my rich clients have trusts, and hold "title" to their assets in the name of their trust. This is a wealth-building, wealth preservation, and tax optimization strategy. Consult with a reputable trust and tax attorney for more information. It’s never too early (or too late) to start - you need a roadmap so you know where you’re going.
The overarching thing that all rich clients have is a team of advisors that they meet with regularly. As Abraham Lincoln said, "He who represents himself has a fool for a client" applies here. My rich clients do not "go it alone." They rely on trusted professionals to design, monitor, and execute strategies that help them reach their goals. I’ve been honored to be a part of their team, and am also honored and excited to share these insights with you!