Manage overall expenses to build wealth quickly
Get in the habit of setting aside money regularly to save aggressively
Set clear, long-term personal and financial goals, which will help you accomplish more
Financial success, and what it means to be wealthy, is in the eye of the beholder. But many of us would like to learn the habits of the wealthy to reach and maintain our wealth potential.
Different people take different paths to becoming rich, and it’s not just about securing a desk in the C-suite, striking it rich in Silicon Valley, or snagging that lucky lottery ticket.
In fact, many of the to-dos on the path to wealth have little to do with earnings. Wealthy people tend to practice habits that are designed to protect and grow their investments and help keep body and mind in balance, experts say.
First, some parameters: Just what is “wealthy?”
Wealth is “definitely a relative term,” says Robert Siuty, senior financial consultant at TD Ameritrade. But the old millionaire tag is still synonymous with wealth, Siuty says, so it’s a good benchmark. More precisely, a wealthy “millionaire” might have $1 million or more in ready cash and other liquid assets (as opposed to illiquid assets).
Don’t Obsess About Your Salary, or Where You Came From
You don’t have to be a high-income one-percenter to be wealthy. Some of Siuty’s clients never made more than $60,000 to $70,000 a year, “but did a very good job of managing overall expenses,” he says.
“They may be sitting on several million dollars, simply because they started early, they saved as aggressively as they could afford to, and they invested that money and stayed invested over the long haul,” Siuty says. “Wealthy people come from all walks of life—they really, truly do.”
Let’s look at a few key habits of the wealthy.
Basically, paying yourself first is about having your financial and budgeting ducks in a row. Wealthy people tend to save a portion of each paycheck. They make sure the usual bills are squared away every month, while setting aside enough to build and maintain an emergency fund. “Anything in excess of that reserve, they invest,” Siuty says.
One key to building wealth is setting a budget and sticking to it. Wealthy people know how to hold the line on discretionary spending items that can help them increase the “invest” portion of their monthly budget.
Wealthy people typically set concrete goals, both personal and financial, and have a long-term focus stretching years, if not decades, down the road—the longer, the better. “Understand that it’s about time—the power of compounding returns, in other words—that allows you to accumulate wealth,” Siuty says.
The wealthy understand that it starts with personal goals—what you want to get out of life and how you might prioritize your list. And once you have an idea what you want to accomplish personally, you can plot a financial road map to help steer you there.
In other words, the path to wealth can involve starting early, and focusing on the long term. If your financial goals are clear and you’ve planned well, you don’t necessarily need to follow every market tick. But you should be aware of how your portfolio performed on a quarterly or annual basis and be ready to re-balance assets if necessary.
Markets go up and markets go down—often suddenly and for no apparent reason. Define your comfort level with risk, keep your emotions in check, and recognize what you can and can’t control.
Wealthy people tend to understand the dynamics of the market and avoid making rash decisions, Siuty says. “They don’t let the market rattle them,” he says. “They actually may turn a bear market into an advantage by buying assets cheap.”
Siuty says there’s no “secret sauce,” except that, to build wealth, it helps to “stay disciplined, be methodical, and not let emotions get the better of you.”
News flash: Wealthier folks tend to be more value-conscious and budget-driven in their spending, and often shy away from big-ticket purchases or expensive toys they may not need.
“Instead of buying the $2 million house, they might buy something that’s one-third or one-quarter of that price,” Siuty says. “Less money to heat it, less to cool it, less in property taxes.”
And wealthy people generally understand the difference between price and value. In other words, they’re not afraid to open the pocketbook, but they tend to expect value in return.
Education is one of the keys to success, and reading is one of the most efficient ways to learn. According to Thomas Corley, author of Rich Habits: The Daily Success Habits of Wealthy Individuals, 67% of the rich watch TV for one hour or less a day. Only 6% of the wealthy watch reality shows, he wrote, while 78% of the poor do.
Corley, a CPA and CFP, found that 86% of the wealthy “love to read,” with most of them reading for self-improvement.
The wealthy tend to get a jump on others and squeeze more out of their days, and they monitor their health and eating closely.
According to Corley, 57% of wealthy people count calories every day, while 70% eat fewer than 300 calories of junk food per day. Some 76% do aerobic exercise at least four days per week. Self-made billionaire Richard Branson, for example, is reported to wake up around 5 a.m. to work out before starting his day.
Correlation, not Necessarily Causation
Of course, these are tendencies, not guarantees, so practicing yoga, reading a book, and setting your alarm ahead won’t magically grow your investment account balance. But seeking a life of balance in mind and body, as well as in saving and investing, can help put you on the right path, and help keep you from straying from that path.
And the earlier you start, the better.
Hands-On Retirement Planning