If you have the privilege of knowing a handful of rich individuals, you will be surprised to find that most of them don’t keep much cash in the bank. Most of them would either prefer to spend on credit, or might take some time to gather the funds to make a big purchase or investment.
How could this be the case when rich people are supposed to well…be rich right?
The Power Of Leverage
The thing is, being rich does NOT mean you should always hold on to cash. In fact, if you were to only keep your cash in your savings account, you will actually be losing money every day due to inflation.
The rich would know how to leverage their wealth and credit score to make as many smart investments as possible to continually grow their wealth.
Read Also: How And When Should I Start Investing?
Putting Money To Work
It’s all about putting your capital to work. I am sure most of you would have heard of the phrase “using money to make money”, and that is exactly what the rich are doing.
Ensuring Liquidity
Of course, they would most certainly leave a considerable amount in cash lying around to fund their lifestyle, meet monthly commitments and in case of emergency.
They would also make sure that a sizeable portion of their investment portfolio consists of liquid investments like stocks or fund units which they can exit from and turn into cash in a few working days. This is also so that they can jump in on a good investment opportunity quickly if one presents itself.
Constantly Looking Out For Investment Opportunities
They will also be on the constant lookout for investment opportunities to put their cash into, in hopes of building their portfolio and continually growing their net worth.
Investment opportunities will not come knocking on people’s doors all the time. That is why the rich usually keep themselves updated with the latest business news and stock trends.
Most importantly, they keep an active social profile and continually mingle with people who might have access to good investment opportunities, such as entrepreneurs or good finance managers. That explains why the rich go to so many conferences, gatherings and social events.
Read Also: What Is An Economic Cycle And How Can You Profit From It?
Beating Inflation
Doing so also helps them beat inflation, by actively putting their money to work and not letting their cash lay idle in banks. If they were born rich, concepts and mindsets like these would probably have been passed down and ingrained in them from their parents who learnt it the hard way.
For self-made wealthy people, they would also have learnt them from experience or from the new rich friends who might have helped them along the way.
Growing Wealth
So, the reason why rich people tend to not have much cash in their bank accounts is because they are actively growing their wealth by putting their hard-earned cash into various investments.
That is how the rich get richer.
Capital is meant to be used to generate more capital, not sit pretty in our bank accounts. In fact, if you allow that to happen, the bank is the one using our capital to generate more returns by investing them in various things (that is how banks are able to give you an interest).
Read Also: What Is A Diversified Investment Portfolio?
Fixed Deposits As A Temporary Parking Spot
When the rich deposit money into their savings accounts or fixed deposits (usually the shortest term ones), it is usually a temporary parking spot for their cash until they can find a good investment opportunity to pour their cash into.
Hence, if you find yourself with a significant amount of extra cash lying around in your bank account, perhaps you should start doing the same as the rich do.
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DollarsAndSense Malaysia is a website that aims to help people make better financial decisions, one interesting, bite-sized article at a time. Like us on Facebook to stay in touch with our latest articles.
