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Could you also benefit from following these rules?
Key points
- Wealthy people borrow money like low-income people do, but they borrow in different ways using debt as a tool to create wealth.
- They also borrow for different reasons, including to earn rewards on credit cards that end up paying back more than they pay out.
Borrowing money may seem like something you only do if you don’t have enough, but that’s not true. There are many rich people who go into debt; they just do it differently than their less affluent counterparts.
Of course, not all wealthy people have exactly the same financial habits. But here are four borrowing rules that the wealthy tend to follow that others often don’t.
Rich people are not afraid to borrow. But they usually don’t borrow money to live beyond their means or because they haven’t been able to save for emergencies or make a plan to cover expenses.
Instead, the wealthy tend to use debt as a tool to help them build more wealth. For example, very wealthy people might borrow money to buy a business if they think they can improve its profitability. They can also borrow to finance a start-up business or use the margin in their brokerage account invest in more assets that will help them build wealth.
2. Make Credit Cards Pay You Instead of You Paying Them
The wealthy often use credit card. But rather than paying interest to the issuers of their cards, they collect rewards by charging for all their purchases and then paying off their balance in full to avoid having to pay interest.
By collecting rewards and never paying credit card interest, the rich get richer from their relationship with their card company rather than poorer. Many rich people even sign up for cards with large annual feebut they do so to take advantage of the valuable benefits these cards provide, such as concierge service, flight or hotel upgrades, and more.
3. Don’t borrow to depreciate assets
As a rule, rich people know that it doesn’t make sense to borrow for something that will go down in value over time instead of up.
By borrowing for things like cars, consumer goods, groceries, or vacations, you end up making those purchases more expensive and thus wasting money. Unless the reason you’re borrowing is to grow your wealth over time, it’s not worth paying interest charges to fund it.
4. Make lenders work for your business
Finally, the wealthy do not just accept any loan that is offered to them on the terms that the lender wants to give them. They often make lenders work for their business.
This could involve doing something as simple as shopping around for different quotes before deciding which bank or checkout take out a loan from. The simple act of comparing offers allows you to opt for the company that gives you the best deal, rather than simply going to a financial institution that you found first.
Rich people sometimes take this process even further. They can apply for fee discounts or other special borrowing benefits, especially if they have a relationship with lenders and can leverage it to get better loan terms.
The good news is that you can follow all of these rules even if you’re not already rich. And it could help you get rich yourself over time.
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