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Everyone has personal finance guidelines they adhere to; however, how feasible are these rules for billionaires? In reality, most of these guidelines do not apply to the ultra-rich. Here are common personal finance rules that don’t resonate with billionaires, alongside their alternative approaches to wealth management.
Consider the financial decisions Musk has undertaken, offering insight into what billionaire wealth truly entails.
The 50/30/20 Rule
The 50/30/20 rule is a budgeting technique that advocates for allocating 50% of income to necessities, 30% to desires, and 20% to savings and investments. While this method suits most individuals, it’s irrelevant for billionaires who do not depend on a single income source. They organize their financial strategies around investments and business endeavors that are poised for significant returns.
6x Emergency Fund
Financial advisors often suggest maintaining an emergency fund equivalent to at least six months of living expenses to address unforeseen financial obligations. For billionaires, this is unnecessary, as they do not rely solely on cash savings due to diversified assets and investments that they can liquidate when needed, even in economic struggles, as highlighted by Money Talks News.
The Rule of 72
This rule is a calculation to estimate how long it will take for an investment to double, based on a fixed annual interest rate. By dividing 72 by the annual interest rate, individuals can approximate the time needed for their money to double.
While this guideline can be helpful for average investors, billionaires don’t simply wait for compound interest to perform magic. Instead, they pursue high-risk, high-reward investments that generate exceptional returns, as noted in an article on Medium by Alpha Global Investments.
The 25x Retirement Rule
This rule advises saving an amount 25 times your expected annual spending during retirement for a comfortable retirement. It is based on the 4% withdrawal rule, which allows individuals to withdraw 4% of their retirement savings per year without risking depletion of funds.
This traditional approach to retirement planning doesn’t correspond with billionaires, according to an article on Unboxify. Many wealthy individuals continue to actively acquire assets and invest in profit-generating companies well into their later years.
100 Minus Your Age
The “100 minus your age” guideline helps determine asset allocation between stocks and bonds according to age by subtracting your age from 100 to find the percentage designated for stocks, with the remaining allocated to bonds. This strategy helps mitigate risk while fostering long-term growth as one ages.
Billionaires, however, continue to engage in bold financial maneuvers as they grow older, prioritizing wealth expansion over preservation. Their focus remains on maximizing returns regardless of age.
