Personal Finance Series #10: Financial Habits of the Wealthy

Hi there,

We are all creatures of habit. Some people think of habits in a negative way, like a gambling or a drinking habit. But a habit is simply something we do on a daily basis without much mental effort. Hence, if we develop good financial habits, they will help us reach our financial and retirement goals. Based on my professional experience, I've compiled the top 5 habits that financially successful people have. Let's take a look!

1. Change the Financial Mindset: What I mean is this: most people spend money on things that they want, then pay the utility bills, and then save what is left over. We need to do the exact opposite. First, save a portion of your take-home income, then pay the essential bills, and then spend what is left over. Think of saving as the #1 essential bill to pay each month. As they say, "pay yourself first".

2. Have a Specific Goal: It is imperative that we have a clear vision of what we want to see in the future. Let's say that you want to provide a memorable family vacation by inviting your family on a week-long cruise to the Caribbean. Well, that's going to cost some money, and lots of discipline to save up! But since you can already envision the smiles and laughter of your family as they enjoy the sun and beach, you can stay the course during the inevitable tough stretches of time when you are tempted to spend that money on other things. You can already smell the sea breeze, can't you? Once you save up for that vacation, then you can start a new vision, maybe this time, saving for a down payment on that dream house! Take it one vision at a time, and before you know it, you've developed a nice habit of money discipline!

3. Live Below Your Means: regarding millionaires, here is a little 'secret': outside of those who inherited millions or had the good fortune to invest in Bitcoin early on, most make their first million by working hard, living below their means, and saving/investing. Warren Buffett has been famously driving a used car for years! The popular rapper LL Cool J leases his midsize family car, even though his net worth exceeds $100 million . How does that make sense? It's all about the mindset and having a good financial habit of living below your means...

4. Use Credit Cards Wisely (or Not at All!): you guys know how I feel about the pieces of plastic that are the bane to achieving our financial goals. To be fair, there are a few benefits to using credit cards, if you are in the need to repair your credit status (by showing how responsible you are with credit now), or the rewards that comes with certain cards. If you are in that situation, pay off the balance in full each month. But...most of the time, we carry over some balances into the following month at extremely high interest rates, AND the balance can snowball in size before we know it. There is the 'good' types of credit, like mortgages and student loans, where interest can bring tax benefits. But interest paid on credit card debt is not tax deductible. Here is one simple trick to apply some discipline: put the credit card(s) in a container of water and freeze them (literally)! Then the next time you have the urge to spend big, take the chunk of ice out of the freezer and let it thaw. While it's melting, you will have a second chance to think about your purchase decision. Chances are, you will come to your senses and realize that it's not all that essential after all!

5. Save for Retirement: get in the habit of saving a bit each month and putting that in a tax-sheltered retirement account, such as a 401(K) company-sponsored plan, or an Individual Retirement Account. The earlier you start saving, the more time your investments have to grow. Doing simple math will illustrate my point. If at age 30, let's say you invest $1,000 a month and achieve a 7% annual return. At age 60, you would have a cool million dollars. If you waited until age 40, then you would have to double the monthly savings to achieve the same result. It pays to start early!

I hope you found this article helpful. Which one(s) did you like the most? Please reply and let us share our thoughts. Thanks for reading!

If you liked this article, check out my previous posts below:

Personal Finance Series #9: Finance Tips for Millenials

Personal Finance Series #8: How to Manage Debt

About the Author : I am a cryptocurrency enthusiast and a U.S. Certified Public Accountant with over 15 years of experience in accounting, taxation, and finance.

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