There's a lot more to being wealthy than
you might think, which is why wealthy people have a lot of things in common
besides money. They've developed good money habits, and that's the most
critical part of financial success. Why? Because it's a lot easier to spend
money than it is to make it, and as I've often said, it doesn't matter how much
money you make -- if you're spending out of control, you'll never be rich. What
habits keep the wealthy from getting into trouble? Here are the big six.
1.
The Mindset Habit
To develop a positive money mindset, you
have to begin with a change of attitude. Most of us have a high level of
anxiety about money; we don't feel in control of our money and are often
paralyzed by the thought of investing because it can seem so complex. Money can
be a driving force but I guarantee it is not a motivator. Yes, money choices
can be difficult. But when you tackle them head on instead of shoving them into
a drawer, you'll discover that life suddenly is not about money any more. You have
the freedom of choice, and that is a great feeling. You need to set concrete
goals and have the personal discipline to see them through.
2.
The Spending Habit
Our need for stuff to fill our big homes,
along with the confidence that our house will continue to appreciate has helped
lead us into a negative savings trend. Negative savings simply means that for
every dollar we earn, we spend at least a penny more. This has to stop. We keep
using plastic to buy stuff so we can keep up with the elusive and infuriating
'Jones' family next door who are in as much debt as we are. Time to ditch the
cards and feel the cash. Eliminate our compulsive spending and look for ways to
cut back....car detailing, kitchen upgrades, impulse shopping, spa days,
cleaning lady, extra cell phones, club dues, eating out and the list goes on.
Don't beat yourself up about it, simply decide today to take positive action
and one of the best ways to do that is to pay yourself first.
3.
The Savings Habit
The wealthy say that the secret to being
wealthy and staying wealthy is to live below your means. Being prudent --
saving your money and investing it wisely -- may seem obvious, but hardly
anyone does it! Part of the reason is, it's harder to save when you're earning
less than other people. The rich save tons of money because they have tons to
begin with. What about us? Well I believe we can still take a page out of the
lives of the rich and not so famous, as long as we live prudently. Every time
you get paid, immediately siphon off a set amount -- between 5 per cent and 10
per cent, or more if you can, into a long-term investment account. And leave
the money alone. You will be surprised at how fast your money begins to grow
and that's the power of time and compounding.
4.
The Investing Habit
The more you learn about investing, the
better off you will be. Whether you plan to work with an advisor all your life
or want to be a do-it-yourself investor, it pays to know the field. What return
do your really need over the long haul? How do you minimize risk, yet still
meet your financial goals? We all have important questions we need answered
before we invest. Knowledge is priceless and be relentless until you find the
answers. You should know something about asset allocation. This is just a fancy
way of referring to the best mix of cash, bonds, stocks in your portfolio based
on your age, time horizon and risk tolerance. Asset allocation is used to
minimize risk and maximize return. Once you understand this, the next step is
to diversify. Asset allocation and diversification work best together.
5.
The Compounding Habit
Here is how compounding works to magnify
your success over time. But remember,compounding only works if you leave your
investments alone to compound in peace and quiet. There is a simple rule called
The Rule of 72. Whatever rate or return you're making, if you divide this into
seventy-two, you'll discover the number of years it will take to double your
money. For example, if your portfolio is making 6 per cent you will double its
value in 12 years. This requires discipline, commitment and focus.
6.
The Collaboration Habit
Money is a very personal thing, so if you
decide to work with an advisor, make sure it is someone you feel comfortable
with. The advisor needs to connect with you both emotionally and financially.
Financial advise doesn't have to be expensive. Don't decide that you don't have
enough money to work with someone. Go into your bank and ask for help. We all
started somewhere and it never hurts to have a second opinion. I am a Certified
Financial Planner and I have someone working with us. Why? Because I like to
bounce ideas off them, I like that someone is watching our money closely while
I'm doing other things and I like the idea that two heads can be better then one.
By the way this isn't about becoming rich
or even becoming a millionaire. Although it would be nice if that's what you
want. To me, true wealth comes from happiness, and happiness comes from within.
This is about taking charge of your finances and getting real about the money
you earn, save, spend or invest, and there's one thing you should always
remember. It is your life, your money, and ultimately what you do with your
money is no one's choice but yours.
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