You might think that being famous is all red carpets, secluded mansions and private jets. Making huge purchases – in cash of course – and living the high life. However, though this is the case for some of the world’s A-listers, plenty of care and attention goes into managing their money, so they stay rich sustainably.
Whether it’s in the form of lucrative mortgage terms, adopting non-dom status or choosing to finance their car rather than buying outright, you’ll be surprised to discover how the uber-rich manage their money.
Here, commercial finance experts, Anglo Scottish Asset Finance, take a look at some of the ways in which the world’s elite manage their money – and the unexpected pitfalls which can occur when you’re wealthy.
As you might expect, members of high society don’t have to deal with banks in the same way that we might. In the vast majority of cases, the majority millionaires’ money is managed by a private banker who may manage their wealth and invest for them.
However, to protect themselves in the event of a market downturn or any other event that could negatively affect their wealth, A-listers will have money in various forms distributed in countries around the world.
Cash-filled safety deposit boxes are increasingly popular – and with high-security vaults such as IBV in London marketed strictly at billionaires, they’ll know their money is safe.
How their money is distributed usually depends where their money comes from – for example, people who have been born into generational wealth are more likely to be asset-rich and cash-poor, with their money tied up in property and other non-liquid assets.
Property is one of the safest investments one can make, and the world’s super-rich invest accordingly. You might expect, however, that these high net worth individuals (HNWIs) would buy homes outright, with no need for a mortgage. However, that is often not the case.
For example, the super-rich can take on mortgages with lucrative terms – the Financial Times explains how mortgages on millionaire mansions can reach up to 100% of the home’s value, with the majority of loans being interest-only. Not only this, but these interest rates can be as little as 1% – on a £7m home!
In the UK, many of the uber-rich are classed as resident non-domiciles (RNDs), who live in the UK but declare their domicile elsewhere. This means that they aren’t taxed on money earned outside of the country, provided they don’t bring that money into the UK.
A-listers may have home loans like this active in multiple countries, allowing them a greater deal of financial agility. Rather than having £7m exit their account in one go, a mortgage – with great rates – frees up capital for other investments.
There’s a common misconception that people who finance cars are only doing so because they can’t afford to buy outright. Whilst this is true in some cases, the world’s wealthiest people often enter finance arrangements to pay for their cars – even though they could easily buy it outright.
The most important reason for this may be liquidity. By paying for a car in monthly instalments, the buyer retains cash, which can be used to pursue timely business opportunities, investments or other large-scale purchases.
A millionaire buyer’s ability to be financially agile might be all the more important, given that many people in society’s upper echelons don’t have a consistent monthly income. For example, film stars’ income will rely on sponsorship deals and filming schedules, meaning that a monthly income may not be guaranteed. By spreading the cost of a vehicle over a longer period of time, their cash flow is likely to be much more sustainable.
For music artists, like hitmaker Tom Grennan, financing a car allows them to protect their wealth against assets that will depreciate once driven off the lot.
A career as a professional sports player sounds great – you earn plenty of money, play until you’re 40ish and get to enjoy a 50 year retirement. However, there are plenty of associated pitfalls that come with managing your money as a professional sports player.
As with a car, it can be more financially beneficial for footballers or other sports players to opt for a mortgage over buying outright with cash. However, since you’ll be retiring at 40 (at latest in most sports), most mortgage companies will only lend to players aged 35-40 maximum.
Stuart Wilkie, Head of Commercial Finance at Anglo Scottish Asset Finance, comments: “Another potential issue occurs when footballers – who can usually afford pricier, shorter-term mortgages – move clubs and are forced to find a new home. Thanks to the higher mortgage payments and the fact that they’re now paying for a new home in a new city, it becomes difficult to manage the payment schedule, even by renting out their previous home.”