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In everyday life I pay for things like groceries in Cash or with my ATM card/credit card.

I am assuming that when wealthy people pay for big things, like billion dollar mansions, yachts, business deals or transferring a few hundred thousand to someone else that they don't work with the same instruments that we do.

What processes do they go through when paying for things that cost more than what most people earn in their lifetime?

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It is going to be hard to objectively answer this, but I am pretty sure they finance them just like you do. However, for different reasons (cashflow benefits) –  JohnFx Mar 3 '13 at 1:56
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Billion dollar transactions are done by bankers ... wealthy people have bankers and wealth sellers have bankers ... once the deal is done, they instruct the bankers to arrange the funds ... then its between bankers how they work it out depending on the country –  Dheer Mar 3 '13 at 4:11
    
So what do the bankers do then? Was more interested in how large sums of money gets transferred. Actually thinking about it I don't know how a bank transfers money at all –  Darcys22 Mar 3 '13 at 7:02
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Bankers place the transactions into the backend system that process cash transfers. We have atleast three such backends, the most popular and high volume being ACH –  f1StudentInUS Mar 4 '13 at 3:43
    
May I ask? How are you defining "Wealthy"? –  JoeTaxpayer Mar 9 '13 at 20:20
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3 Answers

up vote 5 down vote accepted

This is second hand information as I am not a millionaire, but I work with such people everyday and have an understanding of how they handle cash:

The wealthy people don't.

Simple.

Definitely not if they don't have to.

Cash is a tool to them that they use only if they get benefit of it being a cash transaction (one of my friends is a re-seller and he gets a 10% discount from suppliers for settling lines using cash).

Everything else they place on a line of credit.

For people who "dislike" credit cards and pay using ATM or debit cards might actually have a very poor understanding of leverage. I assure you, the wealthy people have a very good understanding of it!

Frankly, wealthy people pay less for everything, but they deserve it because of the extreme amount of leverage they have built for themselves.

Their APRs are low, their credit limits are insanely high, they have longer billing periods and they get spoiled by credit card vendors all the time.

For example, when you buy your groceries at Walmart, you pay at least a 4% markup because that's the standardized cost of processing credit cards.

Even if you paid in cash!

A wealthy person uses his credit card to pay for the same but earns the same percentage amount in cash back, points and what not.

I am sure littleadv placed the car purchase on his credit card for similar reasons!

The even more wealthy have their groceries shipped to their houses and if they pay cash I won't be surprised if they actually end up paying much less for fresh (organic) vegetables than what equivalent produce at Walmart would get them!

I apologize for not being able to provide citations for these points I make as they are personal observations.

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You don't need to be wealthy to get cash-back. I get 6% cash-back for groceries, 5% cash-back for restaurants and 2-3% cashback for gas and travel routinely. I'm in no way wealthy (although I do agree that not using credit cards is usually an ideological thing that is rooted in total misunderstanding on how leveraging works). You also don't need to be wealthy to have stuff shipped to your house, including groceries. Safeway and Amazon do it all the time (Amazon in Seattle, starting also in NoCal, Safeway - in most, of not all, the areas they cover). –  littleadv Mar 4 '13 at 4:34
    
@littleadv: What card is that? –  f1StudentInUS Mar 4 '13 at 17:10
    
several different. Blue Cash Preferred for groceries, cash+ for restaurants, costco for gas and travel –  littleadv Mar 4 '13 at 17:48
    
@littleadv: Thanks. Your feedback also substantiates my answer that there are cards that pay more in cash-back than the fee they charge (e.g. you get 6% cash-back for groceries). I am not sure I qualify for these but I have see people using these cards all the time! The part about shipping was just one example where most wealthy people don't have to pay for it separately just because of the volume of produce they order for the household and I assume they get a discount on the retail prices of the groceries as well. –  f1StudentInUS Mar 11 '13 at 16:05
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While you would probably not use your ATM card to buy a $1M worth mansion, I've heard urban legends about people who bought a house on a credit card. While can't say its reliable, I wouldn't be surprised that some have actual factual basis. I myself had put a car down-payment on my credit card, and had I paid the sticker price, the dealer would definitely have no problem with putting the whole car on the credit card (and my limits would allow it, even for a luxury brand).

The instruments are the same. There's nothing special you need to have to pay a million dollars. You just write a lot of zeroes on your check, but you don't need a special check for that. Large amounts of money are transferred electronically (wire-transfers), which is also something that "regular" people do once or twice in their lives.

What might be different is the way these purchases are financed. Rich people are not necessarily rich with cash. Most likely, they're rich with equity: own something that's worth a lot. In this case, instead of a mortgage secured by the house, they can take a loan secured by the stocks they own. This way, they don't actually cash out of the investment, yet get cash from its value. It is similarly to what we, regular mortals, do with our equity in primary residence and HELOCs. So it is not at all uncommon that a billionaire will in fact have tons of money owed in loans. Why? Because the billions owned are owned through stock valuation, and the cash used is basically a loan secured by these stocks. It might happen that the stocks securing the loans become worthless, and that will definitely be a problem both to the (now ex-)billionaire and the bank. But until then, they can get cash from their investment without cashing out and without paying taxes. And if they're lucky enough to die before they need to repay the loans - they saved tons on money on taxes.

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That actually makes a lot of sense, avoids all the capital gains taxes –  Darcys22 Mar 4 '13 at 9:08
    
I also paid a down payment on a car by credit card, but when I asked about paying the whole car the dealer was having none of it. When you think they are likely to pay 4% to the card issuer, why would they? –  DJClayworth Mar 4 '13 at 20:29
    
@DJClayworth that's why I said that they'd allow it had I paid the sticker price. The difference between what you actually paid and the price on the sticker would cover the CC commission. –  littleadv Mar 4 '13 at 20:36
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I was once the personal assistant to two wealthy NYC sisters. They did not pay for anything. For example, if we were riding the subway, I would pay, and be reimbursed by the Company. They had multiple residences and investment properties. Each property was purchased through a separate Limited Liablity Corporation, and paid for by the Company.

When they purchased, donated or sold art, it was through their family Foundation.

Their income primarily came from a draw of funds from the family estate, although one of them worked as an architect, which provided further income.

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Wealthy enough to have you as assistant, but they took the subway? No Limo/Driver? –  JoeTaxpayer Mar 9 '13 at 22:40
    
This reflects my personal experience as well. I am friends with two people who can buy a Limo of name model Cadillacs and have a fulltime Driver any day but they take the Amtrack with me. We hire cabs just because waiting for buses in LA is too expensive. I have also heard that drawing funds from the family estate attracts less tax (capital gains?) than I pay on my first $80k! –  f1StudentInUS Mar 11 '13 at 15:56
    
Yes, Joe Taxpayer. At times they would hire a car & driver, at times drive themselves in their own car, and at times take the subway. There are times in NYC when the subway is the easiest, fastest way to get around. –  BigFig Mar 11 '13 at 21:20
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