How can you join the unknown rich? Emulate them to become even richer

Proquest LLC

Its hard to tell whos truly wealthy – that is, who has a lot of accumulated wealth and who doesnt. If someone has an expensive car, does this mean that he or she has a lot of money? Not necessarily. All it means is that theyve spent lots of money or have taken on extra debt.

Can you tell more about a persons actual wealth by the home they live in? Not always. You can live in a big, luxurious house without owning much of it because you have a big mortgage or multiple mortgages against it. And, even if you dont, that doesnt mean that you necessarily have other assets consistent with this opulent lifestyle.

Just as many people who appear to be rich arent, many who are rich dont appear so. I call these people the unknown rich. They care more about accumulating wealth than impressing others with status symbols.

In advising many high-net-worth clients over the last 27 years, Ive noticed some of the common habits and traits that led to their wealth. Here are some of them:

They spend within their means. This way, they can pay themselves first, before spending, by systematically investing. And they despise significant amounts of debt. Many Americans are financially hamstrung by credit card debt, which keeps them from accumulating wealth. Instead of drawing interest and dividends on investments, they pay whopping amounts of interest on credit card debL

* They dont buy new cars like the flavor of the month. Instead, they hang on to them for years, getting their moneys worth. Unfortunately, many Americans buy new cars too often. By buying a car, paying it off and keeping it for a while, you can enjoy the ensuing golden period without payments. The authors of The Millionaire Next Door, the 1989 best-seller about how seemingly ordinary people slowly acquire wealth through discipline, included an entire chapter on how driving expensive cars can impede wealth building. Many self-made millionaires drive relatively modest cars; that way they have more money to invest. By practicing this same restraint, you can do the same.

* They live in the same house for long periods. If you keep trading up on houses, you continually pay commissions, fees and other significant costs associated with selling and buying homes – money that you could invest for your future.

Warren Buffet, one of the richest people in the world, has lived in the same house for several decades.

* They get rich slowly. Sure, some of them have big salaries, trust funds or inheritances. But the overwhelming majority are disciplined individuals who start investing early in life and keep steadfastly adding to it with their futures in mind.

* They see their jobs as a means of human capital. While the unknown rich arent necessarily high earners, they seek out educations that will lead to jobs that will both pay their living expenses and provide capital to invest.

* They avoid undue risk. A big part of getting rich slowly is getting rich wisely. The unknown rich are careful to avoid speculative, high-risk investments like hedge funds. They dont want to risk hard years of work and savings for a potential but highly unlikely payoff. They know that, as in the parable of the tortoise and the hare, slow and steady wins the race. One prudent way to avoid speculative risk is to favor passive investment management, like index funds, over active management, where overpaid money managers speculate by buying and selling stocks. Instead, using index funds enables investors to reliably capture the returns of the entire market, with lower risk and much lower fees.

* They protect their assets. A key way that they do this is by making sure they have good insurance coverage. This coverage usually includes an inexpensive umbrella liability policy to help protect against potential lawsuits. The protect-your-assets imperative may also mean getting long-term care insurance – something that their health insurance plans dont cover.

So, instead of racking up debtacquiring status symbols that make you look richer, take a page out of the book of the unknown rich and emulate them to actually become richer. Not only will you have more monetary wealth, but more importantly, youll enjoy the peace of mind which comes with genuine financial security.

This content is based upon information believed to be accurate by ISI Financial Group Inc. However, it should not be relied upon for legal or accounting purposes. Past performance is not indicative of future performance. Investments involve risk, including the possible loss of principal. Always seek professional advice before making any financial or legal decisions.

They get rich slowly. Sure, some of them have big salaries, trust funds or inheritances. But the overwhelming majority are disciplined individuals who start investing early in life and keep steadfastly adding to it with their futures in mind.

Tim Decker, a fee-only financial planner, is president of ISI Financial Group in Lancaster He is the author of The SleepWell-At-Night Investor and host of the radio program Financial Freedom, which airs at noon Saturdays on WHP-AM 580 Contact him at www isifinancialgroup com