Ever wondered what it takes to get rich? Let’s be real, we all have. The thing is, it’s not actually that hard. The biggest problem is that in general, we tend to view the present as far more important than the future. Teenagers and young professionals are much less likely to be saving money for retirement (or the future in general) than someone in say, their late 50’s. However, the sooner you start, the richer you will be down the road.
With the amount of wealth in today’s society, becoming a millionaire is a lofty but attainable goal. There are certain tendencies millionaires share that help ensure their income doesn’t go to waste, and in fact, helps make them even more money. Without further delay, here are the 10 habits of eventual millionaires.
Pay off all debt, on time
This is the first step before saving, investing, or anything else. If you’re in debt you need to treat it as an emergency. Interest from debt accumulates against you and the longer you let it sit around, the more you’ll have to pay. The more you owe someone else, the less you have for yourself. Simple enough.
Just to be clear, mortgages and student loans are both forms of debt that come with scheduled payment plans. In these two cases, it may make sense to make the minimum payment and save/invest whatever else you can. It’s going to depend on the interest rate you’re being charged and the condition of the stock market. As of right now, with historically low interest rates, it would make more sense to go the minimum payment route. But, debt from just about anything else (i.e. credit cards) should be paid off immediately. If the interest rate you’re being charged (credit cards typically run 15%+) is greater than the average market return (approximately 10%) you’re getting a significantly higher return by paying off your debt.
And of course, it would feel amazing to not owe anyone anything, right? Right. So again, make this priority #1.
Spend less than you earn
Another pretty easy and simple one. You don’t need to make $100,000 per year to be a millionaire. But you can’t be spending all of your paycheck either. If you never save anything than how do you plan on becoming rich?
Here’s a not so fun fact; the average American saves roughly 6% of their income. If you would like to have a shot of having a million bucks without making six figures, you need to be able to save a high percentage of your money. Shoot for a 30% savings rate or better, you can do it I promise. Just look for ways to cut down on the three largest costs people typically face; housing, transportation, and food.
Maybe try biking to work!
You know all the savings you now have? Well, it’s not going to do anything for you in a savings account except sit there. Instead, you should put that money to work in the stock market, using index funds. Never heard of an index fund? Don’t worry about it. Google VTSMX (Vanguard total stock market). It has low expenses and tracks the market so you don’t have to do any work except put money in. Soon enough your investments may make more on its own than you do at work.
Understand your Investments
The greatest investor of our generation, Warren Buffet gave this advice and I’d recommend adhering to it closely. The more you complicate things, the less success you are likely to have. This includes picking stocks, options, annuities, or any other complicated financial instrument you don’t really understand. Financial planners and other “experts” often push to sell these because they receive hefty fees or commissions for doing so.
Again, using an index fund keeps things as simple as possible and will make you money over time. Index funds simply buy all the stocks available in the market and weight them based on company size and a few other factors.
You need to be able to adapt to situations and not freak out if the markets take a turn for the worse. The overall historic trend of the stock market has always been up over the long term. There is always going to be change in the world so accept it for what it is. The amount you have invested is irrelevant anyway until you rely on it for income, which may not be for a long time.
Hold Investments forever
This isn’t sarcasm or exaggeration. The longer you hold, the more money you make. The most common way people lose money in the market or lower their returns is by timing the market. One of the largest crashes ever recorded back in the 1980’s shook the financial world, but ushered in one of the greatest bull markets in history. Since it’s impossible to know what will happen next, leave your money be until (again) you’re retired and are forced to withdraw it.
Never stop learning
The more you know, the more options you will have available to you and the more successful you’re going to be. This is true whether we’re talking about money, jobs, relationships, or anything else. Talk to people and read some books, it’ll be good for you.
Think about your mistakes
Mistakes are going to happen and they’ll help you learn, but only if you acknowledge them. If instead you chose to ignore them, you’ll never get any better because of it. This goes back to the point above, never stop learning. Failure is simply a way for people to improve in the future, and often if you learn about something the hard way, you won’t make the same mistake again.
Surround yourself with the right people
One of the most underappreciated assets are the people we interact with in our daily lives. This includes our friends, families, co-workers, etc. and isn’t talked about nearly enough. If you have successful people around you, it’s bound to rub off. However, the same can be said if you hang with the wrong crowd. Pick who you chose to associate with wisely and seek out the people who are consistently the most optimistic and caring.
Positivity will lead to happiness and appreciation for what you have. This will help to attract the right people. This will lead to success. This will lead to wealth.
Be patient and remember, it’s going to take time. However, your financial situation is under your control and can certainly be accelerated by solid investment returns and high savings rates. Subscribe to these habits and you’ll be rich eventually.