Author and speaker John C. Maxwell put it rather succinctly: “If your habits don’t line up with your dream, then you need to either change your habits or change your dream.”
Not everyone dreams of building wealth. But if you do, you need to start building the habits that will get you there.
Fortunately, in today’s world, technology can help you automate many of these habits, which reduces the amount of personal discipline you need to succeed. Even among the behavioral habits you do still need to form, you only need discipline in the beginning while forming the habit. Once established, you tend to continue good habits without thinking about it. No one needs to remind you to brush your teeth, for example.
You don’t necessarily need to implement every habit on this list, and certainly not all at once. Pick one, master it, then choose another to tackle. With each good money habit you form, you pick up more momentum on the road to wealth.
Budgeting & Money Management
Without a budget, or at least a budget substitute, it’s awfully hard to stay financially stable.
It doesn’t matter how much you earn if you spend every penny of it. At the end of the year, a person who earned $1 million and another who earned $20,000 both grew their net worth by $0 if they spent 100% of their income.
1. Build & Track Your Budget Around Savings Rate
The greatest opportunities for savings come from your largest expenses: housing, transportation, and food. These three categories alone combine to make up nearly two-thirds of the average American’s household spending, according to the U.S. Bureau of Labor Statistics.
But major cost savers such as downsizing your home, house hacking, or getting rid of a car often require major life changes. While you work toward your ideal budget, start with intermediate steps such as getting rid of your cable subscription, ditching unused gym memberships in favor of home workouts, and canceling subscriptions you rarely use or that don’t excite you. You can also use a company like Billshark to negotiate lower rates on some of your bills.
2. Align Your Financial Vision With Your Spouse
Take it from someone who knows: It’s awfully hard to reach financial goals if your spouse doesn’t share them.
It took years for my wife and me to agree on long-term financial goals. She wants to live large today. I want to build wealth through high savings and reach financial independence to retire young. After years of tug-of-war, moving overseas, giving up cars, hiring a full-time nanny, and finding a balance, I credit one habit with finally aligning our visions: talking about our finances and progress toward our goals every single month.
I started creating a report for her every month and presenting it to her over a bottle of wine. It included our monthly income, monthly spending, net worth, and progress toward our goals. The report only takes me around 15 minutes to create each month, largely because I use personal finance apps like Mint and Personal Capital (read our Personal Capital review) to collect all our financial data for us automatically.
Because my wife can see our net worth growing before her eyes and can see tangible progress toward our short-, medium-, and long-term goals, she’s more willing to forgo shopping sprees and five-star hotel stays.
And it cuts both ways. I had to listen carefully to parse out what she could live without and where she would draw the line. Then I had to make those concessions without holding them against her.
3. Automate All Expenses (Including Savings)
If you have to remember to pay all your bills on time every month, eventually some slip through the cracks.
Good budgets start with your savings rate as your first and highest-priority expense. Set a percentage of your after-tax income as your desired savings rate, and set up automated recurring transfers to your savings account or brokerage account. Schedule the transfers to take place every time you get paid.
But don’t stop there. Set up automatic payments for your mortgage or rent, your car payment, your utility bills, your credit card payments, and every other bill in your monthly budget.
The more you can automate good behaviors, the less you have to rely on habits and discipline.
4. Prepare for Turbulence
Unexpected bills and crises hit all the time. So frequently, in fact, that there’s no excuse to fail to expect them.
If it’s not a sudden car repair bill, it’s a home repair bill. If it’s not a medical emergency, it’s a job loss. And sometimes you get hit with several crises all at the same time.
Everyone needs an emergency fund to tap into when these “unexpected” bills strike. How much you need and how you structure your emergency fund will vary based on your needs, financial stability, and risk tolerance, but plan to keep at least one month’s expenses in cash, and several more months’ expenses in other easily accessible sources of funds. For example, I keep some money in a Treasury bond ETF as an extension of my emergency fund. Other’s keep this money in a high-yield savings account like one from CIT Bank.
Preparation for the unexpected doesn’t end at maintaining an emergency fund. It also means maintaining crucial insurance policies, such as health insurance and homeowners insurance or renters insurance.
Every year, and often several times a year, you will get hit with nasty surprises. That’s just life, and the wealthy know to prepare so they don’t get caught off guard by the inevitable.
5. Freeze Your Spending as You Earn More
When the average person gets a raise, they immediately find a way to spend it. That could mean a larger home, a fancier car, or going out to dinner more often. Whatever the splurge, this habit means that no matter how much more money you earn, you never actually get richer.
This effect has a name: lifestyle inflation. And if you want to build wealth, you need to consciously defend against it.
Overhauling your budget to reduce spending makes a great first step. But from there, the battle becomes holding the line, not allowing your expenses to creep back up — especially as you earn more money.
If that sounds too spartan for your taste, then allow yourself only a fractional increase in spending with each raise. Set a percentage of future pay raises that you let yourself spend. Say you let yourself spend 25% of pay hikes, and you get a raise for an extra $1,000 per month. You then alter your budget to spend another $250.
The key is to remain intentional about your savings rate at all times if you want to build wealth faster.
Career & Active Income
Spending less helps and serves as great defense. But it also helps to earn more money, or to play offense.
Your goal in building wealth is to grow the gap between what you earn and what you spend. Ideally, you want to spread that gap wider in both directions at once.
6. Start With Lifestyle Design
Far too many people fall into jobs and careers out of convenience or expediency. And those jobs don’t always give them the lifestyle they want outside of work or their desired work-life balance.
Don’t just focus on earning more money. Start by writing out a description of your perfect life: your career, your work schedule, whether or not you telecommute, and the city, state, and country where you live.
Then start taking steps to make that happen.
It may mean taking an initial pay cut or going back to school for additional certifications or degrees. But what’s the point of living a life you fell into by default, based on your parents’ goals or the expectations of your peer group? Pursue your own unique goals, and make sure your career goals align with your broader life goals.
7. Get a Mentor
One way to invest in yourself is to get help from people who have walked your chosen path ahead of you.
Find a mentor who does what you want to do, who’s designed a lifestyle similar to the one you want. You don’t necessarily have to spend money on a coach or mentor; try MicroMentor.org for a network of free mentors across all fields who volunteer their time for free.
Don’t reinvent the wheel. Learn from others’ mistakes so you don’t have to make them yourself.
8. Never Lose Touch or Stop Learning
It may sound hokey, but it’s true: Leaders are readers. They never stop learning, never stop growing, never stop challenging themselves, and never lose touch with the world around them.
That means staying on top of the most important news and current events, particularly in your niche and chosen career. For example, I spend five minutes reading Morning Brew (read our Morning Brew review) as I eat breakfast each morning for business news, and another five minutes listening to the BBC World Service news summary of the top overall news stories around the globe.
But continuous learning also means taking the long view. It means growing yourself personally and professionally through reading or listening to audiobooks, blogs or podcasts, and video training courses. It could mean fresh professional certifications. Only you know what would drive the most growth in your own career or personal life. But whatever you choose, know that the wealthiest — and happiest — people maintain a habit of constant growth.
9. Explore Additional Active Income Sources
That could include low-skill (and potentially relaxing) gigs such as driving for DoorDash, Instacart, and Uber, or it could mean high-skill freelance work such as graphic design or writing. The entrepreneurially minded even start a business on the side while working a full-time job.
Get in the habit of hard work. Growing up, my father always told me that working 9-to-5 was the bare minimum for survival, and it’s what you do outside those hours that determines your success. That goes for ongoing education, generating additional income, or starting a business. The effort all serves a single purpose: to realize your ideal life.
Saving money is all well and good, but what do you do with it?
You invest it. As author Robert Kiyosaki so famously put it in “Rich Dad, Poor Dad,” “The rich don’t work for money. Their money works for them.” Money works for you through two mechanisms: long-term growth and passive income. And both help your wealth compound over time, all in the background without you lifting a finger.
10. Develop Multiple Passive Income Streams
While I sleep, I earn money from stock market dividends, rental properties, interest on private notes, and other indirect real estate investments such as Fundrise. Eventually, I’ll have enough passive income to cover my living expenses, making me financially independent and able to work as little or as much as I like.
Therein lies the goal: to cover your expenses through multiple passive income sources. Having income that’s not tied to working a job is the key to retiring, whether at age 35 or 75.
When you build passive income, you reduce your dependence on your job and give yourself more freedom to explore other options and take risks on new ideas. In his book “Rich Habits,” Thomas Corley found that 65% of the 177 self-made millionaires in his study “had at least three streams of income that they created prior to making their first million dollars.”
11. Invest Regularly & Automatically
But nowadays, you don’t need to be rich to get help in choosing an asset allocation, buying investments, and managing your portfolio. Many of the best robo-advisors, including SoFi Invest and Charles Schwab, don’t charge a cent. Yet they manage your investments for you based on your goals and risk tolerance.
Best of all, they let you automate everything from transferring the money from your checking account to buying investments and rebalancing your portfolio. I set my robo-advisor to move money every other week from my checking account into my brokerage to invest on my behalf. I don’t have to give it a second thought. And because it happens on a regular schedule (known as dollar-cost averaging), I actually eliminate emotion from my investments and reduce my risk as an investor.
Pro tip: If you’re not in love with your current brokerage, consider an account with You Invest by JP Morgan. You could earn up to $725 when you open and fund a new account.
Credit & Debt
You can’t accumulate wealth until you’ve eliminated high-interest personal debt.
Think about it: What’s the point in investing money in the stock market for a 10% average return if you’re paying 20% interest on credit card debt?
Far too many Americans carry unsecured debt. If you want to build wealth, you first need to build good credit habits.
12. Pay All Unsecured Debts in Full, Every Month
Prioritize your high-interest unsecured debts. That includes credit cards first and foremost, but it extends to personal loans and student loans as well.
You already know to automate your bill payments. Now choose either your smallest debt or your highest-interest debt — depending on whether you’re following the debt snowball or debt avalanche method — and put as much money as you possibly can toward it each month. When you pay one debt in full, proceed to the next debt. Then the next, and the next, until you have no more unsecured debt.
Note that “unsecured” refers to the debt not being attached to your home or car. Secured debt, such as mortgages and auto loans, tends to cost less in interest and can sit far lower on your priority list.
13. Improve & Track Your Credit
Paying all your bills on time each month makes a great start on improving your credit. Paying off all your credit cards in full each month takes you one step further.
As you pay off your credit cards, don’t close them. The credit bureaus look at the average age of your accounts and reward you for holding accounts for a long time. Read up on the other ways to improve your credit score to keep boosting it even further.
Use a tool like Credit Karma to track your credit score each month. Your score will naturally rise based on the habits outlined above, but the credit bureaus make far more mistakes than most Americans realize. Credit monitoring tools alert you to any suspicious activity or sudden swings in your score, so you can spot errors and fix them immediately.
Pro tip: If your credit score is lower than you’d like, sign up for Experian Boost. It’s free and it’ll give your credit score an instant boost.
Lifestyle Changes That Reinforce Wealth & Happiness
You don’t need money to be happy — but it certainly helps. To borrow another notion from Robert Kiyosaki, I’ve had times of happiness and times of unhappiness in my life, and times of relative wealth and poverty. Let me tell you, the times when I was unhappy and financially secure were still far better than the times I was unhappy and broke.
Besides, while money can’t solve every problem, it can certainly solve many. When you’re broke, every unexpected cost becomes a crisis. A $500 car repair sends you into a tailspin of panic and stress over how to pay for it. When you have an emergency fund, you spend 30 seconds grumbling about the car bill to your spouse over dinner, then promptly forget about it.
Wealth doesn’t buy happiness, and happiness alone doesn’t guarantee wealth, but the two can be related in some unexpected ways.
14. Take Care of Yourself Physically, Mentally, & Emotionally
It’s hard to excel at your job and earn more money if you feel lethargic, drained, and depressed. And when you feel lousy, you’re more likely to spend money on distractions, which often prove unhealthy, expensive, or both. Keeping yourself healthy can help your finances too.
Sleep at least seven hours a day, preferably eight. Work out every day, even if only for 15 to 20 minutes at home. Make sure you eat a healthy diet, ideally without spending a fortune. Get plenty of social interaction with friends and family, particularly those who share your goals (more on that momentarily). Take time off work to travel and pursue your passions.
Flight attendants instruct you to put your own oxygen mask on first because when you don’t take care of yourself, you can’t take care of anyone else. By taking care of yourself, you position yourself to be a better spouse, parent, and friend, and to be more effective in your career.
15. Surround Yourself With Like-Minded People
By “like-minded people,” I don’t mean people who share your political beliefs or never challenge you. I mean people who share your long-term financial and lifestyle goals.
The old saying goes that you are the average of the five people you spend the most time with, and it rings true. If you want to build an online business, spend more time with others who own online businesses. If you want to reach financial independence at a young age, hang out with others who share that goal; they certainly won’t propose going out for $200 dinners every weekend.
Long-term goals require sustained discipline, and discipline cracks sometimes. When that happens, it helps to have people who share your vision to prop you back up. And along the way, they also expose you to new ideas that can help you achieve your goals even faster.
16. Volunteer Every Month
The wealthy give money, of course, but they also give something even more precious: their time. Thomas Corley found in his “Rich Habits” study that 72% of self-made millionaires volunteer at least five hours every month. How many did you volunteer last month?
Giving back helps the community, but it also helps you. A 2017 study by United Healthcare and VolunteerMatch found that 76% of those who had volunteered time in the last year felt healthier, 78% reported lowered stress, and 94% felt generally happier. According to Mayo Clinic, some evidence even suggests that volunteering helps you live longer.
To come full circle, research from the University of South Carolina and Stockholm University found that, controlling for other variables, more generous people tend to earn more money.
If I’ve noticed one differentiator between successful people and everyone else, it’s accountability.
Successful people take responsibility for every outcome, good or bad, every day. They don’t jump to excuses, and they don’t try to lay blame on someone else. The buck stops with them.
You are responsible for your own success — not your boss, not the job market, not the stock market. When you embrace responsibility for every outcome in your life, you not only find yourself in the driver’s seat, but you also find that everyone around you likes and respects you more. Nobody likes a whiner. But everyone respects those who own both their triumphs and their tribulations, who acknowledge mistakes and take steps to improve moving forward.
Be that person, and the path to wealth becomes a stroll rather than an uphill slog.
What wealth habits do you plan to adopt immediately? What are you doing to create them?
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