Habits of the rich that the rest of us can adopt
Accumulating a million bucks is less about your income as it is the personal finance habits you keep. Read on to learn which of these habits can help you prosper.
Want to be a millionaire? Saving up a million dollars is a goal well within reach for many Americans, according to Thomas J. Stanley and William D. Danko, wealth researchers and authors of "The Millionaire Next Door."
Surprisingly, those with a high income or sizable inheritance aren't necessarily more likely to build wealth than those with mediocre incomes and no wealthy ancestors. If that's true, then what exactly is the key to financial success?
The answer is, quite simply, behavior. First-generation self-made millionaires have created regular, consistent habits that build wealth.
Is it possible to learn these wealth and savings habits and then emulate them?
Thanks to Stanley and Danko's research on the wealthy, coupled with the insights of Charles Duhigg, the author of "The Power of Habit: Why We Do What We Do in Life and Business," it just may be.
Habits of the rich
Overwhelmingly, millionaires save a lot -- an average of 20% of their income -- and spend as little as they can. The trick, of course, is that spending less leaves more to be saved. Millionaires also tend to have these habits:
- Creating (and sticking to) a budget. They know how much their family spends per year for food, clothing and housing, among other major expenses. They spend substantially more hours per month reviewing their budget than do non-millionaires.
- Having financial goals. Wealthy people spend twice as many hours planning their future wealth strategy -- how much of their future income they will save and invest and for what purpose -- as do the non-wealthy.
- Maintaining consistent lifestyles. They stay in the same home (no trading up) and remain married to their original spouse.
- Minimizing major expenses. They often live in a modest home, drive a less-fashionable car and buy clothing off the rack at discount retailers like Kohl's and JC Penney.
Now that we know how the self-made millionaires have done it, how can we emulate their behaviors?
Building a new habit is not always easy, as anyone who has tried to start a new exercise routine can attest. "If we can understand how habits work, however, they become much easier to control," says Duhigg in his book.
How can we create a new habit? According to Duhigg, every successful habit includes four integral parts:
- A cue or trigger. A trigger can be a particular time when the habit will occur, a place, or even an emotion. What cue can you use to trigger a monthly review of your budget or larger financial plan? A cellphone alert? Payday? Maybe you can piggyback it on your already-planned bi-weekly visit to your favorite coffee shop.
- A reward. Potential rewards include tangible items like a coffee shop biscotti or other small treat or a psychological boost like the feeling of accomplishment from seeing your saving account grow and your debt level shrink. The key to success is to pick a reward you'll look forward to.
- The routine. This is where it all gets put together. The cue and reward are performed at a regular interval like once a month in the following cycle: Cue (phone alert) -- > Routine (budget review) -- > Reward (biscotti).
- The craving. After several cycles, a craving for the reward may develop and the habit can become automatic. When your cue is triggered, you can associate your budget review with a reward. You might even start to look forward to the routine. If this doesn't happen, Duhigg suggests you didn't pick a compelling enough reward. Select a new one and try again.
More from SavingsAccounts.com:
"Why do the rich get richer and the poor get poorer?"
It's because the rich keep doing the things that make them rich, and the poor keep doing the things that keep them poor.
Each of those is so important. Well, I can't comment on staying married.
But creating your budget and goals, then realizing them, is a very satisfying feeling. So is maintaining a consistent lifestyle, it's hard to guess where your money is going to go if you're constantly changing. Keep things relatively stable and work around it with your spare money.
May not make you wealthy, but it will keep you independent, debt free, and more or less "comfortable", I'd say it's more comfortable to go without some luxuries than go without necessities because you're spending above your income.
Of course all of this is easier for me because I only have to take care of myself. Responsibilities would make it more difficult, but it's never to late to slowly start transitioning to better habits!
Easy to keep a budget when your making $10,000 - $500,000 a month.
Lets take a look at my situation as an example, making $20/hour which is considerable compared to other, although I have not had a wage increase for 6 years while my corporation continues to rake in billions.
20 x 80 hours = $1600 or $3200/month
Taxes = $1000/month leaving $2200
Bills (Hydro, natural gas, house phone, internet, water, etc.) = $600/month leaving $1600
Mortage and property tax = $900/month leaving $700
Food/household items = $600/month leaving $100
100 whole dollars a whole month to go splurge on whatever I feel like going crazy on. Thats provided my car doesn't need an oil change or God forbid it breaks down and costs $2000 to fix. Birthday party for a family member, monthly budget blown
1) Do not get old.
2) Do not get laid off or outsourced.
3) Do not get downsized or replaced by cheap H1B visa Labor.
4) Do not get sick.
5) Do not allow anyone in your family to get sick or old.
See? It is so simple, you don't need social security or Medicare, affordable healthcare or any of that socialist Democrat stuff, vote Republican we will continue to destroy any program helps the middle class while giving tax cuts, bailouts and bonuses for failure to the wealthy.
Remember trickle down was proven to work by Raygun and Dubya.
Even though I have excellent credit I do not have debt. I stay on a course of making sure that if I want something I better want it bad enough to be able to pay it off next month if I charge it (for credit score purposes only, because you need to rotate credit to keep an excellent credit score). This is my just in case emergency. I probably could save even more; however, I do want to live and enjoy life. Doesn't take much for me. I just wish my family would do the same instead of spending and looking at me and saying oh woe is me. I get sick and tired of being the bank for everyone, because I know how to save. My mother taught me at a younger age and I listened, not the siblings; however, will say, my mother could rub 2 dimes together and make a dollar, she was a wiz and I have learned good lessons from her
You don't have to live below your means, you do however have to live within your means. Before you spurge on yourself, it's always important to put away as much as you can for those rainy days that will come. If you don't have a foundation from which to build from such as health, solid skill sets, and able to think critically, it really might not matter how much your income levels are since you are always one bad choice from throwing it all away.
Folks aren't poor simply because they have kids. Folks aren't poor simply because of educational differences. You don't have to be a stinking Genius to get rich. Sometimes you have to be lucky. Sometimes you just have to be well connected. There are plenty of folks dumb as crap but since they are a friend/relative of the right folks, they are making money hand over fist. Those are usually the ones crapping on everyone else.
The system was never designed for everyone to be wealthy. It was built however to give the illusion that everyone can be Rich.
Maybe they buy them by the gross, on sale.
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Preteens, rejoice. The grown-ups have a compelling reason to consider getting you a tablet this year. Adults, listen up.