Good Habits To Build Your Wealth
Most wealthy people did not get rich overnight. Just as with fitness, achieving financial freedom requires hard work, discipline, and sacrifice. Here are some excellent habits to get into in order to build your wealth.
Set yourself detailed and realistic goals. Talking about goals may seem cliche, but all of those “how to be successful” books tell us to do it for a reason. Setting goals helps to motivate us and keep us on track to achieving them. It is also easier to track your progress if you have a goal in place. Thinking about our goals every day can help us to make decisions, no matter how big or small they may be. Perhaps the most importantly, though, is that they give us vision for the future.
Religiously monitor your net worth. Your net worth is your total assets minus your total outside liabilities. Many financial experts consider net worth to be the fundamental measure of financial success. It is important to understand the difference between a high-income earner, and someone of high net worth. Joe Bloggs may earn a six-figure salary, but have a net worth of less than $100,000 because of bad money management. Tracking your net worth is a good habit to get into. If you’ve never calculated your net worth, it may be a reality check.
Save a large proportion of your income. This one can be tricky and will require a lot of self-discipline. A high-paying job, though it helps, is not necessarily need to build your wealth. What is needed, though, is enough discipline to not spend all your earnings. The more you save, the quicker your wealth will grow, and the sooner you’ll be able to retire. I’ve talked about living off 50% of an income before. It is not an easy feat, especially if you’re used to spending a lot of money. However, it is doable, and it can be done at a gradual progression rather than going cold turkey.
Avoid expensive things. We’re always on the hunt for the best interest rates on our mortgages, and will shop around for the cheapest wireless services and fuel prices. It is interesting though, that in spite of this, a lot of us will spend thousands of dollars on holidays, cars, and eating out. It doesn’t make any sense. Try to avoid expensive things. Skip the fancy restaurants, expensive clothes, and 5-star resorts and opt for cheaper alternatives.
Pay yourself first. This is an alternative budgeting strategy. Most people budget by allocating money to each category every month, and saving whatever is left over. This makes it hard to reach your savings goals, because they are not prioritized. Instead, try paying yourself first. Basically, on payday, transfer money into your savings or investment accounts and pay your bills. Whatever is left over is your spending money. By putting your saving goals before your spending, you’ll achieve financial freedom a whole lot faster.
Avoid consumer debt completely. Car loans, furniture loans, holiday loans or any other type of consumer debt are financial suicide. The same goes for credit card interest. All of these items depreciate in value, which means you end up paying more for them in the long term than if you had saved ahead of time and paid cash. Try not to buy anything on credit. It is amazingly simple. If you don’t have the money in your bank account, then don’t buy it. Unless you can pay off your credit card balance in full each month, then don’t use it.
Actually have an emergency fund. Pretty much every bit of financial advice I have ever got has included having an emergency fund. We know we should have one, but we don’t always do it. If the time comes when it is needed, you’ll be very happy that you didn’t have to dip into your savings or use your credit card. Keep your emergency fund in a high interest-earning savings account, easily accessible for when the time comes.
Save ahead for large expenses and purchases. By doing so, you can avoid consumer debt completely. Keep a list of every large purchase you intent to make in the next couple of years. Things like flights, gifts, car maintenance, moving expenses etc. should all be included. Depending on how much time you’ll have before you make the purchase, save for these in savings accounts or short-term investments.
Keep investing. When building your wealth, consistency is crucial. Regardless of your current financial situation, investing will make you money in the long run. Whether you’re a little low on funds or whether you have a little extra, don’t stop investing!
There is nothing new or complicated about these habits. They’re simple but they will require a lot of self-discipline to put into practice.