5 lessons the rich can teach you
They don’t just have more money. They spend it, borrow it and save it in ways that might benefit you, too.

By Liz Pulliam Weston

Personally, I'm not sure how much the average person can learn from the Donald Trumps or George Soroses of the world.

We might envy their lifestyles or their bank accounts, but very, very few of us will ever approximate their wealth.

Most of us, though, have a shot at being millionaires. Last year the number of households worth $1 million, not counting their primary residence, grew 21% to 7.5 million, according to Chicago-based research firm Spectrem Group.

Studying the habits of this relatively large and growing group of affluent folks can teach us a lot. These people don't just have money; they treat it differently than people farther down the economic ladder.
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The rich are indeed different
At least, so say various surveys of the affluent. Among the most notable differences:

They give away more. Charitable giving dropped sharply among the wealthy after the 2000-2001 bear market, according to Spectrem Group. Still, households with $500,000 or more in investible assets gave away 6% of their incomes last year, and those with net worth of $5 million, excluding primary residences, contributed 6.1% of their incomes. That compares to an average of about 2% for all American households and 4% for households with incomes under $25,000, according to American Demographics.


"Our clients appreciate the success that they've had and they want to pay it forward in some way," said financial planner Ross Levin of Edina, Minnesota. "We have one client, a developer and his wife, who give away 50% of their income."

They are much more likely to own businesses. Overall, about 12% of American families own all or part of a privately held business, according to the Federal Reserve, compared to 41% of those whose net worth puts them in the top 10% of households. Business assets comprise 21% of the total net worth of households who have $500,000 or more in investible assets, Spectrem said.

Closely held and family-owned businesses are a major source of wealth for many of financial planner Victoria Collins' clients, but these holdings present major challenges. It's risky having so much of one's net worth tied up in a single investment that could be tough to sell. That's why Collins and other planners encourage their business-owning clients to diversify their other investments.

"Any time you have a super-concentrated position -- whether it's an individual stock or a business -- you have to be concerned," said Collins, who's based in Irvine, California.

They borrow strategically. The wealthy are only slightly less likely to owe money than average folks, according to the Fed, but how they borrow is quite different. The richest 10% of Americans are half as likely to have credit card debts (22.4% vs. 44.4% overall), although the median balances for those who carry balances are about the same for both groups (around $2,000). The wealthier folks are also much less likely to have installment debt, such as auto loans (25.6%, compared to 45.2% overall).

What the wealthy often do have is mortgages. More than half -- 55.5% -- have a primary mortgage, compared to 44.6% of households overall. Another 15% carry loans on other real estate, compared to 4.7% of the general population.

Mortgage money is pretty cheap debt at current low rates. Although many wealthier folks can do and own their homes outright, financial planners say, many prefer to put their money to work for them in investments that can earn higher returns.

They don't blow a lot of money on cars. Jay Leno, with his fleet of exotic cars, is the exception rather than the rule. The average millionaire does tend to spend more money on his wheels, but vehicles represent a much smaller proportion of his net worth.

The Fed survey showed the median value of all vehicles owned by the wealthiest 10% of households was $25,400, compared to $11,800 for households overall. But vehicles represented just 2.4% of the wealthiest households' median net worth, compared with 8.8% of net worth overall.

"My wealthier clients are much more likely to own an American-made SUV than a Range Rover or a (Mercedes) S500," said Mark Lamkin, a financial planner in Louisville, Kentucky. "Most of them live a very unassuming lifestyle, but they're able to do anything they want, whenever they want."

They're almost always homeowners, and many own investment property, too. Homeownership is almost universal among those in the top 10% of net worth: 95.8%, according to the Fed, compared to 67.7% overall. About 40% of the highest-net-worth group own some kind of real estate such as rental property or a second home, compared to 11% overall.

But real estate isn't their major source of wealth. On average, principal residences account for 10% of the net worth of folks with more than $500,000 in investible assets, Spectrem said, while other real estate accounts for 7%.

Investments are king
Most of their wealth is investments:

* 46% in stocks and bonds, managed accounts, IRAs, mutual funds, deposits and alternative investments
* 10% in pensions and defined-contribution plans like 401(k)s
* 6% in insurance and annuities

There are also some indications that wealthier Americans are cutting back their exposure to real estate. The percentage of people with net worth over $1 million who own investment property shrank to 44% in 2005, down from 50% in 2004, according to TNS Financial Services, a market-research company.
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Financial planner Deena Katz believes her clients and other wealthy folks will continue to buy second or vacation homes but may be less likely to buy rental or commercial properties.

"They're starting to re-evaluate their real-estate holdings," said Katz of Coral Gables, Florida. "Real estate is overpriced, and people are recognizing that."

The lessons here aren't revolutionary, but they're well worth learning: Don't be a miser, take strategic risks, live within your means, diversify. You may never make the Forbes 400 list of the wealthiest people, but you can create a richer life.

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.