10 Mar 5 Money Habits of the Financially Independent
Many people dream of becoming a millionaire but it rarely happens overnight and often requires many years of building and maintaining healthy financial habits, along with making smart financial decisions.
Becoming a millionaire for many people signifies financial security and the freedom to do and pursue the things that make us happy. There is also the potential of not needing to work for the rest of your life. Many think luck, or a high-paying job, are the only paths to millionaire status but there are other routes.
You can increase your chances of becoming a millionaire if you implement these five money habits:
1. Establish Savings Goals
Many self-made millionaires established aggressive savings goals early in life, enthusiastic and consistently saving 20% or more of gross income year after year. This level of commitment is not attainable for all however the point is to establish a disciplined saving regime of a significant percentage of your pay cheque every time you receive one.
Automating the process by setting up a standing order or giro ensures you save and don’t spend. Just like other essential contributions that are removed at the beginning of each month such as rent and whatever is left is yours. The trick is – out of sight, out of mind.
Goal number one ensures you have three to six months worth of average monthly expenditure available for emergency expenses.
Once that is achieved you have greater potential to save further surplus income without interruption due to unforeseen circumstances.
Over time, your contributions accumulate growth and the effect of compounding can provide impressive return
2. Be Frugal
This is a no-brainer. Being frugal means spending your money wisely. Prioritise what you are buying. There’s no secret skill to being a bargain shopper, it simply requires patience, self control and forethought before making any purchase.
You want to weigh all the options for whatever it is you are purchasing and ask yourself whether you are achieving the best value for money. It doesn’t hurt to get creative, there are a lot of little things you can do or life hacks to live a frugal, but still, a rich lifestyle that can ultimately make a big long-term impact on your wealth.
If this is a new concept to start slowly, make one small change at a time. Next time you go out to eat, for example, try going a little earlier and taking advantage of happy hour specials instead of full menu prices. Or next time you go to the grocery store, take some coupons with you.
Figure out which expenses you can do without and which are essential, work towards eliminating the not so necessary ones.
3. Avoid Lifestyle Creep
Lifestyle creep is raising your standard of living to match your level of income. It’s one of the biggest pitfalls that keeps people from building real wealth. As an individual’s income increases over the years, one’s standard of living often increases in tandem – a bigger house, more expensive car, nicer meals out, more lavish holidays, etc.
If you really want to accelerate on the road to millionaire status, you should focus on upgrading your savings and investments first before your lifestyle. A dollar invested today is much more powerful than a dollar earned in the future. Automate a significant portion of the additional income into investments and only enjoy a small percentage of your raise.
4. Keep Expenses Low
Wait, isn’t being frugal and keeping expenses low the same thing? When we think of a frugal person, it’s typically a personality trait or mindset that focuses on prioritizing spending. Keeping expenses low is generally about spending less. Keeping your spending under control is obviously going to help you track towards becoming a millionaire.
Stay away from bad debt to finance things you don’t necessarily need. If you’re still paying off student loans, credit card debt or a car loan, don’t add other debt to the equation. Spend within your means.
5. Surround Yourself with the Right People
This may not be quite as obvious as the others, but it’s certainly equally as important. Whether we like it or not, the people closest to us do have an influence and impact on the decisions we make in our lives, including financially. Surrounding ourselves with people who share the same goals and visions when it comes to becoming financially independent certainly has a positive impact on our ability to commit to habits that build wealth.
This is especially true when it comes to your spouse. Open communication is extremely important when you have shared finances with your spouse. Having shared goals that you spend the time to articulate and track helps to facilitate strong financial habits as a team. Friends who share the common desire to be financially independent one day, free from the requirements of living month to month are much more likely to have a positive impact on your financial habits.
What does your millionaire future look like? Are you establishing the right habits to put you on track? If you’re a Millennial, now is the best time to start building strong financial habits. Time is on your side and your financial future is in your control.
Glenn Emms is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives, or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Glenn Emms is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.