3 Savvy Money Rules that Wealth-Minded People Follow
Last month you may have seen the proposal to end federal tax benefits for 529 college savings plans, which sparked intense backlash and was withdrawn quickly. Even if you haven’t been following that news, or aren’t yet saving for your children’s education, 529 plans are an interesting example of how the wealth-minded manage their finances.
The 529 plan was created to make higher education more affordable by allowing account holders to invest, grow and withdraw money tax free (sort of like a Roth IRA for college savings). But over time, the 529 has become disproportionately popular with higher income households, who often use these plans to save on taxes.
Which begs the question – what are some of the common financial rules that the wealth-minded live by, and what can we learn from them? Here are three examples that anyone can adopt – no matter what stage you’re at in the money game.
1. Treat debt like a tool
It’s not uncommon for people these days to have a negative reaction to the idea of being in debt – after all, irresponsible debt practices all but collapsed the global economy less than a decade ago. But wealth-minded people understand that debt can be a powerful (and often necessary) wealth-building tool. Rather than stigmatize debt or swear off it completely, they simply use it responsibly and to their advantage.
For example, in his book “How Rich People Think,” author Steve Siebold found that the millionaires he interviewed weren’t afraid to fund their futures from others’ pockets. He also found that they view money through a logical lens, versus the more emotional perspective that others take.
Student loans are a good example of this rule, particularly if the degree you’re financing is likely to increase your earning potential. Other examples include taking out a small business loan to help your company grow (and hopefully earn more profit) and using a personal loan to fund specific skill acquisition (e.g., learning to code), which can propel your career forward and increase your income, as a result.
2. Always look for the best deal
Wealth-minded people aren’t passive about debt – they’re laser focused on protecting their cash. Specifically, they know that interest and fees can add up to a substantial sum, and are particularly mindful in a way others may not be.
One example: credit cards. If you’re taking good care of your credit, you may assume you’re getting the best rates. In all likelihood, you’re not. It may be possible to refinance your credit card debt at a lower rate (and save yourself a bundle on interest). One way to do that is using a low interest rate personal loan to pay off your high interest rate credit card debt (after that 0% credit card deal expires).
For example, SoFi now offers personal loans with fixed APRs as low as 5.5% (with AutoPay), no application or origination fees and up to a $100,000 limit. With an online application that takes just minutes to complete, the SoFi personal loan is designed to help people with great credit save money and fund the things that matter most in their lives like skill-building, home improvements, weddings and more.
3. Minimize taxes where possible
As the 529 example illustrates, wealth-minded people actively seek out ways to keep more of what they earn so they can invest it elsewhere (and build more wealth). You’ve heard the tales of mysterious Swiss bank accounts and Mitt Romney’s jaw-dropping Roth IRA balance, but the more common application is much simpler: they leverage the heck out of tax-advantaged accounts like 401(k)s.
For example, a recent Economic Policy Institute study showed that top earning households account for 72% of total savings in tax-advantaged retirement accounts, compared with middle-income earners at only 8%.
It’s understandable that high income earners (in high tax brackets) would be more motivated to minimize their tax burden, but that doesn’t mean those with average incomes should forgo these benefits. By saving early and often in a 401(k), IRA or other tax-advantaged account, your money has more opportunity to multiply through the magic of compound interest and returns.
The common theme throughout these rules is that they all require some action. Building wealth takes time and effort, but if you can establish your own smart money rules to guide you along the way, you’re more likely to see the rewards in the form of a better financial situation.
SoFi is a leading marketplace lender and the largest provider of student loan refinancing, with $1,750,000,000+ in loans issued. We help ambitious professionals accelerate their success with student loan refinancing, MBA loans, mortgages and personal loans. To learn more about SoFi, go to www.SoFi.com.
This article is intended to provide useful information about personal finance, but it is not intended to provide legal, investment or tax advice.