What are the money habits of the wealthy? You might imagine the wealthy spending without limit, but actually the wealthy are cautious with their money. It’s the poor who are more likely to over spend and leave themselves without money. The wealthy save and learn to live below their means, so they always have an abundance of money.
They save and invest rather than spending on things beyond their financial means. By doing so, they are able to make their money work for them, so they can eventually escape the need to trade time for money. They are able to build businesses with their capital and invest in opportunities, therefore growing their wealth and escaping the rat race.
Here are a few money habits of the wealthy, which anyone can start to implement into their own financial management, even on a tight budget.
Money Habits Of The Wealthy: Pay Yourself First
Most people will get paid from a job and immediately pay their bills, rent mortgage etc. They buy the necessary food and groceries. Then, if there’s anything left over, they will buy things with it such as clothes or entertainment; often, running into the overdraft before the next pay day!
The wealthy know to pay themselves first. They set up a payment into a savings account which goes out with all the rest. Pretty soon, they forget this is going out and treat it the same as all the bills. This has a two fold benefit. One, they learn to live beneath their means – the opposite of what most people do. Most people live above their means which is why when it comes to pay day, they are already into their overdraft and have created some debt. The second benefit is of course they start accumulating money in a savings account; ideally one which has a high interest rate so their money compounds over time. According to a recent survey 20% of Brits have no savings at all in 2022.
Anyone can begin this habit, even with a tiny percentage of their income to get the habit going. Set up an automated payment into a savings account which is hard to access. This helps you avoid the temptation to dip into it, so you can treat it as a longer term plan. If you don’t automate payments, it becomes much more difficult to stick to a savings plan. So set one up with a monthly payment, no matter how small.
Money Habits Of The Wealthy: Know Your Latte Factor
In his book The Automatic Millionaire, David Bach talks about the “latte factor” which is a term used to describe the small regular spendings you justify to yourself as a “treat”, perhaps. A latte coffee can cost as much as $7, or around £5 here in the UK! So if you treat yourself to two of these a week as a regular occurrence, this can set you back $728 over the year. While this may not seem like much, if you have a few “latte factors” which you instil into your average week, the effect is cumulative.
By getting to know your latte factors, you can become more conscious of your spending habits. Small changes can have dramatic effects over the course of a year, or a few years, and this saving could be money accumulating in an interest generating savings account instead!
Money Habits Of The Wealthy: Big Hat No Cattle
Are you big hat no cattle? In the UK we have a saying which is similar to this Texas expression meaning you’re trying to portray yourself as richer than you really are. It’s called “all talk no trousers” in the UK! Is your money going into a flash car, house or watch, for example? If so, that’s money which could be used to build a business, or invest in another money creating opportunity.
Would it surprise you, for example, that Warren Buffet lived in the same house he bought in 1958 for $31,500 for over 60 years, despite being one of the richest investors in the world?
In his book Stop Acting Rich, Thomas Stanley also attests that the rich mostly use modest vehicles and don’t flash their cash as you might expect.
“The median price paid by millionaires for their most recent (vehicle) acquisition was only $31,367. The typical price paid by deca-millionaires was $41,997, nowhere near the $75,000 figure it is assumed that rich people spend on cars.” – Thomas Stanley Stop Acting Rich.
Earn Passively
The wealthy know that if they must trade their time for money, they will have a limited amount of it. Since there’s a finite amount of time in the day. So even with a large income and good salary, when you stop working, you stop earning. That’s not to say the wealthy don’t work as employees. Many wealthy people do work jobs, but they also have other things to earn them a passive income too.
Robert Kiyosaki know for his books Rich Dad Poor Dad, breaks down earnings into four different categories: SE – Self employed income, E – Employment income, I – Investments, and B – Business. He calls this the cash flow quadrant. By getting into business and investment, you are able to use income from employment and self employment build businesses and investments. This can ultimately give you passive income, which can replace employment income. For more information on building an online business see my affiliate marketing mentors website.
Don’t Do Debt, Are Owners Not Renters
The wealthy don’t do debt because they know falling into it means they will be paying money in interest if this happens. If you have debt, one of the first things you should do to help you build wealth is to reduce debt, reduce interest on debt and eliminate it as soon as you can.
The wealthy aim to be on the other side of this equation; earning money passively rather than spending it on debt. They buy rather than rent, and pay off loans and mortgages as soon as they can.
Mortgages can last for years and ultimately you will pay considerably more than you borrow over a course of 20-40 years. By paying off a mortgage early, you can reduce the amount you pay and of course be mortgage free!
Paying off a larger proportion of the minimum amount of a mortgage can lower your payment term by several years and save you thousands, if not tens of thousands!
