My recent posts have been packed with investing terminology and the fundamentals of how to build wealth through investing (mainly through stock index funds). I want to shift away from the technical posts for a week and change it up a little bit.
Throughout the past two years, I’ve worked hard to acquire knowledge about money- how it works, how it grows, and most importantly, how it affects the lives of people. As much as we may not want to admit it, money does have a major impact on our lives. Money plays a significant role in determining an individual’s quality of life. I heard a quote recently about money and happiness, and I think it hits the nail on the head.
“Money doesn’t buy happiness, BUT it is a good down payment.”
It’s true. Money doesn’t buy happiness. Money isn’t going to magically turn a grumpy person into a happy person. As a matter of fact, all money does is turn us into MORE of what we already are. If you are a natural spender, you will spend more money when you get more money. If you are a natural saver, you will save more money when you get more money.
As I’ve learned more about money, I’ve also learned more about how the wealthy handle their money. Although we (Mr. & Mrs. FMM) are nowhere near financial independence, the habits I have learned from the wealthy have led us to greatly increase our financial net worth in a short amount of time.
About one year ago, our cumulative financial net worth was around $16,000. Although we were both employed and making close to six figures in combined income, our net worth wasn’t really growing at a fast rate. We didn’t have any debt except my car loan. I was contributing a small portion to my company’s 401(k). I then began to slowly apply some basic principles that I picked up from all the books I read on how the wealthy handle their money. One year later, those principles have us 100% debt free, maxing out 3 separate retirement accounts (Roth 401k, 2 Roth IRA’s), and increasing our net worth from $16,000 to around $65,000 (306.25% increase).
The wealthy have habits that make them wealthy. It isn’t luck or magic that makes them more money. Here are the basic habits I’ve discovered about the wealthy that can help turn your financial situation around and put you on a path toward true wealth…
#1 – They avoid debt like the plague.
Growing up in America, we’re constantly fed advertisements of things the “wealthy” have. The commercials generally go something like this…A mid 30’s couple with 2 kids, live in a single family home in a picket fence suburb, and out front is a brand new BMV with a big red bow on it. These commercials place an idea in our head of the things we need to be deemed “wealthy” or give us a feeling that we’ve made it.
The problem with these commercials is that this isn’t what the typical American family looks like. The typical mid 30’s couple who has 2 kids and a mortgage can’t afford that brand new $50,000 ride. Companies know this, and have tricked the majority into thinking they can actually afford it via debt/monthly payments.
The truly wealthy don’t fall for this trick. It’s simple for them- if they can’t buy it outright, they know they don’t have the amount of money required to make the purchase. If the purchase requires a monthly payment, they avoid it. They know monthly payments will only tie their money up and prevent them from investing that money appropriately.
#2 – They know how to say “No.”
The word “no” doesn’t scare the truly wealthy. It’s what made them wealthy in the first place. They never had an issue telling family and friends “no.” The bottom line is their top priority, and if they feel that accepting an invitation will negatively affect that bottom line, they will very quickly deny the invitation. Warren Buffett says it best…
“The difference between successful people and really successful people is that really successful people say NO to almost everything.”
It isn’t that the wealthy enjoy rejecting people, it’s that they are so focused on building their wealth that they don’t allow themselves to get distracted or peer pressured. They don’t live their days planning for Friday and Saturday nights. They understand that mentality is what the majority do, and they know the majority are broke.
#3 – They are constantly learning.
One thing that the wealthy may value even more than money is their time. They absolutely HATE wasting their time. They hate it because they know that time lost = money lost. The wealthy don’t waste hours of their days on Netflix, social media, and at the bar scene. They don’t partake in these activities routinely because these activities do nothing to advance their intellect.
Reading is an activity that is almost like breathing to the wealthy. They are constantly absorbing new information so that they can advance their intellect. They understand that in order to keep growing financially, they must constantly keep up with the times and absorb new material.
Personally, I used to HATE reading. I was the typical kid in high school that never read the books in English and tried to B.S. my way through the classwork reviews the next day. If I didn’t pick up and read Investing for Dummies two years ago, I would never have been on the financial track I am now. ALL of my financial knowledge has come from books. Give it a try- put aside the laptop/cell phone, turn off the TV, and go read a book!
#4 – They are frugal.
Fairly obvious, huh? The wealthy don’t waste/spend their money often. They hoard each dollar like it is their very own child. They live WAY below their means, and they get more enjoyment out of saving/investing their money than they do from spending it.
No, they don’t deprive themselves…they just simply are very selective on how they spend their money. Very rarely will you see a financially independent person constantly buying take-out food, going out to the bars on Friday AND Saturday nights, or taking routine vacations. Most financially independent individuals find ways to save their money by making their own meals, staying in with their close family/friends, and only taking vacations when they have saved and allocated money for them.
It really just comes down to this…They severely limit the money that leaves their wallets. Their money is allocated to their needs, not their wants.
#5 – They constantly find ways to increase their income.
Another simple one…It’s easier to build your wealth if you increase the amount of money you earn. More money earned means that you are able to save/invest more. They don’t stay complacent in their current position. They are constantly finding ways to increase their income whether it be by obtaining certifications, getting an advanced degree (WITHOUT DEBT), or simply picking up more tasks in their work environment.
Not a moment goes by where they aren’t thinking about how to earn more. I have personally developed a motto that has helped me in this realm. I pick a number in my head that I want to achieve, then I DOUBLE it. For example…
Let’s say I want to increase my salary by $10,000 by the end of the year. I then double that number in my head to $20,000, so that mentally I work even harder to reach that new goal.
By simply doing this, your brain will work even harder and find ways you never would have thought of before. Although you may not get to that doubled amount, I can almost guarantee that you will get to your original amount plus more!
#6 – They save/invest their raises and bonuses.
Most people splurge when they get a salary increase or a yearly bonus. They upgrade to fancier restaurants, buy more expensive drinks, upgrade their living arrangements, etc. The wealthy don’t do this. They see these increases as a chance to invest even more money. They take all that extra money and shove it into their investment accounts. They are already used to living at the salary wage they were previously at, so they don’t allow themselves to succumb to lifestyle inflation.
#7 – They plan for the long-term.
The wealthy don’t focus on the short-term desires that the majority do. Friday and Saturday nights do not distract them. This is what normally comes to their mind instead…
· Saving for a 20% down payment on a home
· Paying their mortgage off early
· Opening and funding their children’s 529 college savings plans
· Maxing out their retirement accounts to ensure their financial security
· Ensuring that their family has the appropriate forms of insurance in case they are unable to provide for them anymore
· Securing financial security for not only their family, but potentially for their brothers, sisters, parents, nieces, nephews, grandchildren
Today’s desires will never supplant tomorrow’s security. Their family’s future financial security will always be their first priority, and they will never allow present distractions to get in the way.
#8 – They could care less about what others think of them.
In my opinion, this is the most important. The wealthy NEVER care about what others think about them. This may include family, friends, and colleagues. Once again, it’s not that they enjoy people thinking negatively of them- it’s simply that they are so focused on their financial path, that the opinions of outside voices don’t warrant any of their attention. Although the majority may think they are crazy/boring/introverts, they don’t care because they know deep inside themselves that what they are doing is for a higher and long-term purpose.
The wealthy’s mentality is completely opposite than that of the general public. They are very methodical and rarely succumb to short-term desires. They plan with the end-game in mind and stay focused for every step of the journey. IF achieving financial freedom is something you desire for you and your family, begin to adopt some of these traits and apply them in your lives.
If you can think of anymore traits, feel free to share!