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A CFP shares how his millionaire clients spend, save and invest their money

CFP Faron Daugs reveals the financial habits of his millionaire clients.

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Select’s editorial team works independently to review financial products and write articles we think our readers will find useful. We earn a commission from affiliate partners on many offers, but not all offers on Select are from affiliate partners.

When it comes to managing your money, it's natural to have a lot of questions: Are there expenses you shouldn't put on a credit card? How much cash should you keep in your savings and checking accounts? When are you ready to start investing?

But personal finance is personal, and sometimes the answers to these questions aren't straightforward. What works for one person won't work for another. And it can sometimes seem like certain financial decisions are only reserved for the very rich.

Yet, we can also learn a lot from how wealthy people manage their money — and apply some of their good habits to our own lives.

Select spoke with Faron Daugs, certified financial planner, founder and CEO at Harrison Wallace Financial Group, about the smart financial moves he sees his millionaire clients making.

Daugs has more than 30 years of experience, and he's seen his clients go through various economic events that impacted their money over the decades. But no matter what was going on with the economy or the markets, they stayed disciplined when it came to spending, saving and investing their money.

Here are five money habits of Daugs' wealthiest clients that anyone can apply to their own finances.

1. They don't overspend

If you have more disposable income, it's easier not to overspend. Yet, it's worth noting that even millionaires, including some of Daugs' clients, still have frugal spending habits.

While these clients do enjoy some of life's finer things, Daugs says they typically do not overspend.

For example, they'll purchase a certified pre-owned car versus buying a brand new one; they will search for good deals on vacations; they may upgrade to economy plus on an airline but won't pay for first class; they will keep their cell phones as long as they are working and don't feel the need to upgrade every time new technology comes out.

2. They utilize rewards credit cards

Daugs' clients use credit cards that offer rewards for their spending. Many of them will put most of their day-to-day living expenses on a credit card that offers points or miles in return. Then they use these rewards to offset the cost of vacations or leisure activities.

And they always make sure to pay their credit card balance off in full every month to avoid incurring any interest charges or fees.

Another added benefit of using a credit card for most of their everyday expenses is that Daugs' clients have a strong understanding of what it costs them each month to live their lifestyle. "This then proves to be extremely helpful information when helping them plan for their retirement goal and retirement expenses," he adds.

How you can utilize rewards credit cards, too

The best rewards credit card for your wallet should help you earn rewards on the purchases you make the most.

For example, if you spend a lot on groceries, consider signing up for the Blue Cash Preferred® Card from American Express to earn 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%).

Anyone planning to travel as Covid restrictions ease in the coming months should take advantage of the Chase Sapphire Reserve®, which offers luxury travel perks, a $300 annual travel credit, earn 5X points on air travel 10X total points on hotels and car rentals when you purchase travel through Chase Ultimate Rewards (after using $300 annual travel credit), 3X points on travel worldwide and on dining at restaurants including eligible delivery services, takeout and dining out, plus a generous welcome bonus of 50,000 bonus points after you spend $4,000 on purchases in the first three months from account opening.

3. They pay themselves first

The habit of paying yourself first — also known as reverse budgeting — means you build a budget based on your savings goals rather than based on your spending and expenses. In doing so, you ensure that every month, money gets allocated to future you.

Daugs' clients pay themselves first by systematically saving money via direct deposit from their paychecks, or as a recurring transfer from their checking accounts.

"Whether it be into their employer retirement plans, IRAs or general investment accounts, this is money they put away and invest with no intention of using it for day-to-day living," Daugs says.

By saving first, Daugs' clients are able to freely spend whatever is leftover, with the comfort of knowing their savings plans — both long- and short-term — are already taken care of.

"They live within these 'net cash flow' means and make every effort to keep all savings plans active and increase them on an annual basis," Daugs says. "They do not dip into these investments for anything other than their intended goal."

4. They keep an emergency fund at all times

An emergency fund is essentially a stockpile of cash that you can use in the short term for unexpected expenses.

Financial experts generally suggest setting aside three to six months' worth of your living expenses in an emergency fund (Daugs' clients typically maintain six to nine months). But just how much you choose to save is dependent on your individual income and comfort level.

Arguably as important as how much you save is where you save. Your emergency fund cash should be kept in a savings account that's accessible and not at risk to the ups and downs of the stock market, but at the same time it should always be earning the highest return possible.

"In today's low interest rate environment, it can be challenging to find reasonable return for these emergency funds in traditional savings accounts," Daugs says. For this reason, Daugs recommends his clients follow a more productive "tiered" strategy when deciding where to put their savings:

  1. Tier one: In a simple money market or high-yield savings account.
  2. Tier two: In an ETF portfolio that invests in short-term maturity securities. "While these can fluctuate in value, they typically generate higher yield than savings accounts and the short-term maturity keeps potential fluctuation in [value per share] at a minimum," Daugs adds.
  3. Tier three: In Buffered ETF investments. Since it is unlikely that Daugs' millionaire clients will actually need their reserve dollars quickly, they utilize these Buffered investments that allow for potentially higher returns tied to a market index, such as the S&P 500 or the Nasdaq, yet offer some degree of downside risk protection, aka a "buffer."
How you can be strategic about saving for your emergency fund

In Daugs' tiered strategy, each tier takes on a bit more risk as you progress from tier one to tier three. This strategy is only recommended for those who have more risk tolerance; otherwise, stick to a high-yield savings account that is FDIC-insured and offers an above-average interest rate.

Select's top pick is the Marcus by Goldman Sachs High Yield Online Savings. Marcus offers no fees whatsoever and easy mobile access. It is the most straightforward savings account to use when all you want to do is grow your money with zero conditions attached.

5. They are strategic about carrying debt

Most of Daugs' clients try not to carry debt on things like cars or boats to avoid paying years of interest on something that quickly depreciates in value.

However, they may carry a mortgage on their primary home. "This is especially true in this current low interest rate environment," Daugs says.

He adds that still even now, most of these clients accelerate their mortgage payments to pay it off years ahead of schedule and thus reduce the overall interest they have to pay.

Bottom line

Of course, millionaires come to the table with more disposable income and resources than the average American. It's easier to save when you don't live paycheck-to-paycheck. That said, these five financial habits are straightforward and can be good guidelines that anyone can follow.

No matter where you are on your own financial journey, establishing smart money habits early on can help as you navigate how you want to spend, save and invest your cash.

Information about Marcus by Goldman Sachs High Yield Online Savings has been collected independently by Select and has not been reviewed or provided by the banks prior to publication. Goldman Sachs Bank USA is a Member FDIC.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.