At the moment, it might be easy to draw conclusions about rich people based on the billionaire in the White House. But in reality, most affluent Americans are much less inclined to wear their wealth—or talk about it—than Donald Trump. The people more likely to flaunt their wealth are actually the ones with less money in the bank. “The most extravagant homes I’ve been in have belonged to people who, four out of five times, had to move out because they couldn’t afford it,” says wealth advisor Natalie Schmook.
Here are some of the myths we believe about how rich people spend:
1. They don’t worry about money
How do affluent people who aren’t born into money strike it rich in the first place? By worrying about it. “I see people with $10 million, and they can tell you exactly how much they’re saving each month,” Manisha Thakor, the VP of financial education at wealth management firm Brighton Jones, told me recently. “I think it’s a huge misconception that people who are wealthy are not paying attention to how much they’re saving and spending.” In truth, many will use points to book travel, skip the first-class plane ticket, or think twice about charging something to a credit card if there’s a 3% fee, Schmook says. “It’s just a general awareness of money.” After all, being wealthy doesn’t preclude you from spending beyond your means.
2. They spend on expensive cars and homes
If you assumed wealthier folks are more showy and, say, like to lease luxury cars regularly, that’s less common than you might expect, Schmook claims. Instead, they often go for cars that are less of a status symbol—a Honda Odyssey instead of a Range Rover, for example—in the interest of saving money and being discreet. In fact, millionaires more often drive a Honda or Toyota than any luxury car brand. “It’s a little more common to pick something that is below your means and not going with a brand name that screams you have money,” Schmook says.
Another luxury the affluent don’t always indulge in is owning more than one home, which Schmook points out is an expensive proposition, even for someone with money. “When you hit that $5 million mark, you could have a nice second home, but you might be renting it to help offset the cost,” she says. A couple worth more than $20 million may have multiple second homes, but maintaining more than one home that cost millions of dollars is no small feat—even for a millionaire many times over. “If you have $20 million in assets, you don’t have a $4 million beach house and $4 million place in the city because that’s $8 million in total,” Schmook says. “And when you look at what it costs to keep those up, you only have $12 million liquid dollars to care for [those houses].”
3. They always know how to manage money
That said, affluence doesn’t automatically arm you with financial savvy. Schmook has found that people who come into money are usually more frugal and cognizant of their spending, but that isn’t necessarily the case for subsequent generations born into money. “A lot of it has to do with the family values that are communicated around wealth, but I would say in general, the willingness to spend money on pricier things and live a pricier lifestyle amplifies with each generation,” Schmook says. “Somebody who earned the money, especially if they came from a very modest background—they’re not going to buy their first BMW until they’re probably in their 50s or 60s.”
People who are born rich may feel more pressured than their parents to maintain their lifestyle and keep up with the Joneses. Schmook says she also sees certain types of professionals, like doctors, tend to spend more freely. But Schmook has also found that even wealthy folks who work in the finance world aren’t always knowledgeable enough on how to manage their own finances. “You can go to business school and get an MBA, and you can even work in finance,” Schmook says. “But that doesn’t always translate to understanding how to manage your own personal wealth for the long run.”
4. They take investing risks
“Non-wealthy people think you get wealthy by finding the hot stock,” Thakor said recently. “Wealthy people understand the key to building wealth is compounding.” In other words, the wealthy don’t always make risky investments. Instead, they tend to follow Warren Buffet’s advice and opt for index funds, rather than actively managed funds—the simplest, lower risk way to invest. “The people I work with just kind of want their money to grow and they want to sleep at night,” Schmook says. Many people build wealth simply by maxing out on their employer-based retirement plan and then supplementing it with an individual retirement account. In Schmook’s experience, it’s the ultra-wealthy who gravitate toward hedge funds or private equity investments. Real estate is a more popular investment—but again, even those investments are more modest than you might imagine.
5. They live like celebrities
Some of the misconceptions around wealth and how it usually presents can be traced to reality TV and social media, which often portray the richest slice of the top 1%. (The preponderance of these shows also might help explain why so many people self-identify as middle class.) One thing you won’t find regular rich people investing in is a private jet, which is largely the purview of celebrities and billionaires—a luxury far too indulgent and expensive even for those who could afford it, unless their company is paying. “Unless you have your own pilot’s license and your own plane, you are not flying private,” Schmook says. “I know people whose cash flow is $1 million a year and they don’t fly private.”