Do you wonder how the wealthy protect their money? I did, so I started researching and in the article below I have provided my perspective. Now, this article is not about building wealth it is about protecting whatever you have. Strategies that millionaires use to protect their wealth can also be used by someone who has, say $50K in savings.
I love reading books and one of the best book in personal finance is “The Richest Man in Babylon”. I strongly recommend reading this book and I have used some references from this book in this article.
1.Work with experts
You will observe that wealthy work with experts in different fields to get best advice.
“Gold clingeth to the protection of the cautious owner who invests it under the advice of men wise in its handling.” – The Richest Man in Babylon
When the rich invest their money they take advice from experts, do their due diligence and they don’t trade in a speculative way.
Instead of filing their taxes on their own they rely on best tax consultants/ CPAs to plan and file their taxes.
Instead of buying insurance themselves they leverage expert insurance advisors. If you are looking to protect yourself by having the right insurance then you should try coverclan.com . They will assign an insurance advisor/agent who will shop with upto 50 insurance companies to get you the best rate and coverage.
2. Buy sufficient insurance
Wealthy protect their money by buying the right amount of insurance coverage.
“Better a little caution than a great regret” – The Richest Man in Babylon
We cannot afford to be without adequate protection. The way kings used to protect themselves by building a strong wall around their palace, the same way wealthy people use the right insurance products to protect them.
Imagine someone visited your house and they hurt their back. They may end up suing you for say $500K. Now regular liability coverage in homeowners policy may cover $100k – $300k or something different based on coverage you have. Rest you will have to pay from your pocket and this may drain all your savings.
Image you are involved in a car accident with multiple car pileups and you are found at fault. You may end up paying huge amount in terms of liability which can drain your finances.
How can you protect yourself from situations like this? Either buy additional homeowner/auto liability coverage or for $150 to $300 per year, you can get an Umbrella policy with million dollar liability protection. By paying a small amount you are protecting yourself from a catastrophic loss.
Rich work with insurance advisors/ risk planners to insure different aspects of their life.
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3. Why do the rich buy life insurance?
You may wonder that if someone has, say $100 million in wealth then they may not need life insurance. Their family can use money they left and they can save on premiums. But that’s not true .
In fact, the wealthy use life insurance to protect their wealth and pass it on to the next generation.
For assets exceeding $11.58 their family will have to pay estate tax at a 40% rate. Which is a lot of many and their family may not have that much cash handy. If rich don’t buy insurance then their family will have to sell assets (probably at lesser value) to pay for estate taxes.
That’s why the wealthy protect their money by buying sufficient life insurance so that their family can use insurance payout to pay for estate taxes and other financial obligations. In current example they will be able to pass $100 million in assets to families and taxes will be paid by insurance payout.
Now you may not have $100 million dollar, but still even a million dollar policy which may cost you say $30 to $80 per month ( rates will change based on your age and health) can be a huge help to your family.
They can pay mortgage, debts and use it for expenses.
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4. Why do the rich buy annuities?
Now I know many financial gurus will tell you that annuities are evil, there is a high cost, charges etc but wealthy do buy annuities to protect their wealth.
Annuities may not be the right product for you but it is good to know why rich buy annuities.
What is Annuity : An annuity is a financial product that pays out a fixed stream of payments to an individual, and these financial products are primarily used as an income stream for retirees.
Rich use annuities as contractual transfers of risk products and not as an investment product. Hence they transfer risk to financial institutions who sell annuity.
For example assume you buy a million dollar joint annuity and it pays you $45K every year. You will get this amount every year till you live no matter what happens to the market or economy.
Many states shield annuities from creditors and frivolous lawsuits . Hence money you park in annuity is protected and cannot be accessed by creditors and predators.
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5. Don’t show off and live modest lifestyle
In book millionaire next door, authors have done research and found that most people get rich by living a modest lifestyle. Same is true for protecting wealth as well.
In today’s society if people know that you are rich then they will treat you differently and may try to take away your wealth by suing or cheating. It’s better to stay away from limelight.
Also, if you don’t spend lavishly and stay in your budget then you are more likely to protect your wealth.
6. Invest Wisely
“Rule No. 1: Never lose money.
Rule No. 2: Never forget rule No. 1.” Buffett
Wealthy protect their money by following this rule.
They take advice from experts, due their due diligence and try to minimize their risk.
“GURAD THY TREASURES FROM LOSS” – The Richest Man in Babylon
Hope you find this article useful. Please leave a comment and share it with anyone who may find it useful.
Do you shop with up to 50 insurance carriers to get the best rate for insurance?
Do you have an insurance advisor who can guide you about right coverage?
If not, then try https://coverclan.com/ . We will assign an insurance advisor who will shop insurance for you and save time,money and provide peace of mind.