What secrets about managing money do
the rich know that the average person doesn’t?
The rich have certain very specific
money habits that were instrumental in helping them accumulate their wealth.
1.
Know Where Your Money is Going
Look at your bank statement and
credit card statement every month.
You’ll uncover expenses for things
you were not even aware you were paying for, such as club memberships,
subscriptions, recurring charges for products or services you don’t even use.
Oftentimes these recurring charges
are the byproduct of some “free” promotion you signed up for.
The problem is those promotional
periods end and when they do, that’s when the charges begin.
2.
Annual Expense Review
Many expenses change over time.
Insurance costs, such as life
insurance, can actually drop when the life expectancy tables are internally
adjusted by your insurance company’s underwriting department.
You’ll never know unless you reach
out to your insurance agent to find out.
Also review your health insurance to
make sure you’re not inadvertently paying for dependents who left the nest, are
on their own, and have coverage through their employer.
Cable and Internet costs often
change when certain channels are added or dropped.
You may be paying for channels you
were not even aware were part of your package.
Calling your cable or Internet
provider to secure the lowest fees available should be an annual process.
Periodically shop cell phone plans.
Increased competition in the cell
phone industry is driving down monthly rates. Make sure you are not paying more
than you have to.
3.
Avoid Spendthrift Friends
Most people were not taught the
habit of living below their means by their parents.
As a result, it is very likely that
some of your friends are dragging you down with their reckless spending.
A night out on the town can
sometimes turn into an unexpected $300 night and vacations can turn into
investments.
Think long and hard about the affect
your friends are having on your spending habits.
If you hang out with spendthrifts,
you could become one yourself. Our habits are influenced by those we associate
with.
The self-made millionaires in my
study made a conscious effort to associate with like-minded individuals.
Make sure you are associating with
individuals who share your desire to live below their means.
4.
Purchase Good Quality Used Cars
New cars lose value as soon as they
come off the lot.
Buying good quality used cars allows
you to take advantage of this loss in value anomaly prevalent in the auto
industry.
44% of the rich in my study
purchased good quality used cars.
Typically these are cars coming off
a lease.
They may be two or three years old.
At 125,000 miles most cars will require some annual repairs.
Expect to incur about $1,500 a year
in repair costs when you hold on to cars beyond this 125,000 mileage mark.
That is still significantly less
than you would spend on a loan or lease for a new car.
5.
Use On-line Coupons – Online sites like Groupon, Living Social, Fab and many
others offer discounts of 50% or more on restaurants, products and groceries.
Thirty percent of the self-made
millionaires in my study used coupons.
Why pay more than you have to on
groceries or other expenses?
6.
Keep Housing Costs Between 25% – 30% of Your Monthly Net Pay
Contrary to what you’ve been led to
believe, most of the rich do not live in McMansions.
Sixty-four percent of the rich in my
study lived in modest homes.
7.
Save 20% of Your Net Pay
Automate your savings by having 20%
of your net pay sent to your savings account every pay period.
This will force you to live below
your means because you will be forced to live on the remaining 80% of your net
pay.
8.
Never Gamble Your Savings
There’s no such thing as getting
rich quick without exposing yourself to unnecessary risk.
The power of compounding with safe
investments can grow your savings and make you wealthy.
Saving just $250 a month over 40
years will produce $381,505 at a 5% return.
9.
Allocate Your Savings Using The Bucket System
Bucket #1 is your Retirement Savings
Bucket.
Bucket #2 is your Specific Expense
Bucket (i.e. saving for a down payment on a home, wedding costs, birth of a
child, etc.).
Bucket #3 is your Unexpected Expense
Bucket (i.e. home repairs, car repairs, medical costs, unemployment, etc.)
Bucket #4 is your Cyclical Expense
Bucket (birthday gifts, holiday gifts, vacations, back to school, etc.).
10.
Establish Savings Goals Per Bucket
Earmark a certain percentage to set
aside for each bucket.
For example, if you save 205 of your
net pay the allocation might look like this:
- 10% for Retirement Bucket
- 4% for Specific Expense Bucket
- 3% for both Unexpected Expense Budget and Cyclical Expense Bucket.
Saving money is a process.
Accumulating wealth is a process.
It’s all one big process, this thing
we call financial success.
But if you don’t have a process or
adopt good money habits you will never be able to save.
It just won’t happen.
When you develop good money habits
you feel like you are finally in control of your life. It’s empowering.
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