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Do Millionaires Pay Off Debt or Invest?

You may have questions about millionaires and how they spend their money. Possibly, one of the questions you have is, do millionaires pay off debt or invest? We will help you answer that question in a few.

Becoming a millionaire is a journey that takes time and effort. It also requires one to have the financial literacy and know how money works. Millionaires do not work for money. Instead, they put their money to work for them by investing.

So, do millionaires pay off debt or invest? Millionaires stay away from debt and instead invest their money and use the proceeds to buy things they are in need of. Instead of getting into debt, millionaires save and invest until they have enough reserves to buy what they need in cash.

How Do Millionaires Make their Money?

The following are some of the ways through which millionaires make their money.

1. They Stay Away from Debt

You will note that most millionaires stay away from debt. Although some millionaires use debt to create wealth, a majority of them save up until they can afford to pay for expenses in cash. Most millionaires and billionaires do not owe money to banks. Things like student loans and car loans are not in the bank statements.

Also read: How to make money buying debt.

2. They Invest

Millionaires have learned the skill of growing their money. While the average person struggles to pay off debt, millionaires are usually busy investing. Millionaires tend to diversify their portfolios by investing in different instruments like stocks, bonds, or Exchange Traded Funds (ETFs).  

By investing in multiple instruments, they are able to avoid investment risks. They then use proceeds from their investments for future purchases like vacations and other short-term and long-term goals. As such, they do not depend on borrowing to fund their expenses.

Also read: How the rich use debt to avoid taxes. 

3. They Build Up an Emergency Fund

Millionaires build reserves that can serve them for a long period in case of unexpected turn of events. If they have an unexpected expense they had planned for, they withdraw from their emergency fund. This way, they are able to avoid the high-interest rates charged on borrowing.

4. They Avoid Taxes

Rich people know how to avoid expenses like tax. Tax avoidance is legal. Some of the ways rich people avoid taxes are by receiving salaries in the form of stock options instead of cash, giving charitable donations, and investing in stocks

5. They Look for Multiple Income Streams

Millionaires don’t have a single source of income. They usually have built many streams of income and many investment portfolios. Millionaires usually have many passive income sources like rental income and dividends from stocks. As such, they do not look up to salary as their last resort. 

Do Millionaires Pay Off Student Loans?

Most millionaires can afford to pay school fees for their children. However, even if they can afford you pay for their education, some just prefer to apply for student loans. If a millionaire applies for a student loan, then they are required to pay it back.

Some millionaires pay off student loans for their friends or class. For instance, billionaire Robert F. Smith, CEO of Vista Equity Partners paid off student loans for the entire graduating class in May 2019. However, waiting for millionaires to pay off student loans is not a good strategy. Start paying your student loan as early as possible.

Also read: Not paying student loans living abroad UK.

Conclusion: Do Millionaires Pay Off Debt or Invest?

Millionaires avoid so much getting into debt. As such, millionaires do not pay off debt, and instead, they invest. If they are in need of something, they save and invest until they have enough reserves to pay for it in cash. This helps them avoid interest rates on debts that would otherwise take away from their wealth. In short, millionaires know how money work and as a result, they make money work for them.

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