10 Things Wealthy People Know That You Don’t…

secret-habits-of-the-wealthy

Came across this very well-written article by Jocelyn Black Hodes and hence decided to use it in entirety with some added wisecracks from us. Changed the title a little bit and replaced “Rich” with “Wealthy”. You can find the original write-up at 10 Things Rich People Know That You Don’t. The text in Italics is quoted from the article.

Financially responsible and successful people don’t build their wealth by accident — or overnight. Becoming rich takes serious willpower and long-term vision. You have to be able to keep your eye on the prize of financial freedom, be willing to sacrifice your present wants for the sake of your future and develop good habits to win.

With one caveat…the key is to balance current consumption with future needs and that can only be done once you know where you stand and where you want to go. Undersaving is a problem but oversaving could also be an issue if it comes at the cost of impacting your’s and your family’s quality of life. Back to the article…

Here are 10 habits you can start putting into practice now.

1. Start Early

As the old saying goes: The early bird catches the worm… or, in this case, gets to retire in style. The sooner you put your money to work, the more time it has to grow. Earning a paycheck, whether you are self-employed or work for a company, means the opportunity to contribute to an IRA, which you should seize ASAP. If you’re fortunate enough to get a job with a company that offers a matching contribution to their retirement plan, you need to make it a priority to enroll in the plan as soon as you are eligible. It can be the difference between retiring early and never retiring.

Think about this: If you invested $10,000 and left it to grow for 40 years, assuming an average return per year of 8 percent, you would end up with over $217,000. But if you waited 10 years and invested $20,000 — twice as much — you would only end up with just over $200,000.

Whatever your situation might be, saving and investing money today is better than waiting until tomorrow. Start now.

One more thing to add, every year you delay saving and investing in your 30’s will cost you 5 more years of toiling at your work before you can call it a day. Now if you love what you do and cannot imagine life without it, that’s great but just because you want to work doesn’t mean you will continue getting work. If you think there is no age discrimination, you haven’t been around company campuses as much, especially in the valley. So start early, save often and stay invested.

2. Automate

You can be your own worst enemy when it comes to financial success. It’s all too easy to procrastinate and neglect what needs to be done and, in the meantime, give in to temptation and spend more than you should. It’s the perfect recipe for not becoming rich.

The best way to protect yourself from yourself is to automate your savings. That means setting up recurring transfers on a regular basis from your checking account to your savings and investment accounts (or setting up auto deduction from your paycheck to your employer-sponsored retirement plan). This way, you force yourself to avoid bad money habits and save what you would likely otherwise spend. If you haven’t already, set aside 15 minutes on your calendar now to do it. Not later, now. Your rich future self will thank you.

Automate your savings as much as possible. We routinely set up systematic investment plans for our clients directly linking their bank accounts with their investment accounts. The process of systematically investing not only lets you ease into the markets over time but also helps reduce risk and minimize taxes by providing new capital for efficient asset allocation.

3. Maximize Contributions

When it comes to retirement account contributions, you’ve probably been told to start small and then try to increase the amount by at least 1 percent every year until you max out. If you’ve been procrastinating, then yes, even a small starting contribution is better than none. The problem is that small efforts can lead to small results. If you want to be rich, you have to save like you mean it. And that means contributing the max amount allowed from the get-go (and at least as much as your employer will match in your 401(k)).

This is especially true if you are starting to save later in life and need to play catch up. You might worry that maxing out your contributions will squeeze your cash flow too tightly, but it is easier to get in the habit of spending less if you don’t have that extra to money to spend in the first place. It’s much harder to increasingly scale back your budget year after year to accommodate for increasing contributions.

Not much to add here. Just do it.

4. Never Carry Credit Card Balances

Revolving, high-interest debt is one of the biggest threats to your financial freedom. It can seriously drag you down, costing you thousands in unnecessary fees and interest charges — and prevent you from saving more. If you ever want to be rich, you have to ditch the bad habit of carrying credit card balances, along with the minimum payment mentality.

Instead, you need to learn how to use credit wisely, rather than as a crutch, and commit to paying off your balances in full each month. Smart credit card holders know and practice the tricks to maximize rewards, points, discounts and monthly cash flow without getting in over their head. Of course, living within your means is key to your success.

Of course, indeed…

5. Live Like You’re Poor

Have you ever met someone who is unassuming and modest and then were surprised to later learn that they are actually rolling in dough? I had an older client who was stuck in 1983: he wore ugly brown suits and running shoes, drove a beat-up baby blue Volvo station wagon and lived in the same modest house he bought 40 years ago. Turns out, this man was an uber-successful entrepreneur and multimillionaire — and even richer because of his humble habits.

Millionaires are all around us, and many of them are probably not who you would think. This is because they smartly live below their means and save their money rather than showcase it. Of course, it’s easy to live below your means when you have millions, but even if you have far less, getting into the habit of spending minimally now will help you have a lot more later. The trick is adopting a “less is more” mentality and sticking with it, even when your income and net worth increase in the future.

We beg to differ on this because if you are following all the necessary steps and are on track to meet your financial goals, there is no point denying yourself life’s little and sometimes big pleasures. Remember, you have only one life and this life (…that was a shocker). But revelations aside, we personally believe in the minimalist philosophy where the decisions you make needs to be evaluated in the context of their impact not only on your immediate family but the wider global community and of course, the environment.

6. Avoid Temptation

The temptation to live large and beyond our means is all around us: TV, magazines, friends, family, colleagues, “the Joneses.” It is nearly impossible to escape the pressure to spend, spend and then spend some more. The problem is that overspending often leads to debt accumulation, undersaving and long-term financial insecurity.

Force yourself to avoid negative financial influences as much as possible. That means going cold turkey: Avoid malls, unsubscribe from all those retail emails and don’t sign up for new ones and say “no” to invitations that you know will cost you.

Then, replace these temptations with things that motivate you.

Or replace them with the “right” kind of temptations…

7. Be Goal-Oriented

Goals inspire us, motivate us and give us purpose. Many of us have common goals, such as paying off debt, buying a house and retiring by a certain age. Maybe you have another goal of starting your own business or buying a second home. Unfortunately, goals are easily overshadowed by the daily stresses of life and all too often forgotten and neglected. When goals are just fleeting thoughts in your mind, they lose their meaning and influence over your behavior. This leads to bad financial habits, and your dream of becoming rich stays just that — a dream.

To make it a reality, stay focused on your goals by committing the time to think about them, prioritize them and assign a target saving amount to each of them if possible. Then you should display your goals in places where you can be reminded on a regular basis, which will keep you accountable and help you stay on track.

Well…okay…

8. Get Educated

Successful investors take the time to study key financial concepts, learn the dos and don’ts and stay abreast of current trends. They take advantage of opportunities to strengthen and expand their understanding and expose themselves to financial information on a daily basis. Take a cue from them and subscribe to The Wall Street Journal, watch CNBC, pick up Fortune or SmartMoney instead of a gossip magazine and follow financial experts on Twitter. Become a devoted student of money, and you can master the science of getting rich.

Be careful not to overwhelm yourself, and only follow advice from credible sources, so you don’t fall victim to progress paralysis or unsuitable and potentially dangerous investments.

Even when seeking help with managing your finances, some knowledge of basic investment concepts is critical to make sure that the advisor or his firm is acting in the best interest of you and your family or is he one of those commission-seeking, account churning, day-trading junkie…

9. Diversify Your Portfolio

Successful investors also know not to put all of their money eggs in one basket — or two baskets, for that matter. They spread their wealth across a variety of investments, from stocks, mutual funds, ETFs and bonds, to real estate, collectibles and startups. A diversified portfolio means that you can potentially take advantage of multiple sources of growth and protect yourself from financial ruin if one of your investments bombs.

An easy way to achieve diversification is to invest in an asset allocation fund, such as a target-date fund or “life strategy” fund that is based on your risk tolerance. And if you don’t have the means to buy property outright, you can explore investing in real estate mutual funds, ETFs or investment trusts (REITs), which can even offer steady income in some cases. Learn more about crowdfunding, which now gives the average investor the ability to support startup companies. Just be careful not to concentrate your money too heavily in any one investment.

No-brainer one more time…

10. Spend Money to Make Money

It’s true that there’s a price to pay for wealth, but unless you’re Warren Buffett, it is not gambling — and losing — on stock picking. Impulse, naivety and emotions, particularly greed and fear, can seriously hinder your chances of being rich if you let them. The best way to protect yourself and get a step up on your financial goals is to first invest in a team of financial professionals. This means hiring a qualified and experienced financial advisor, accountant and in complex cases, an estate planner. Yes, working with pros will cost you, and you can still do some DIY investing, but their objectivity, expertise, personalized guidance and ongoing monitoring can be well worth it (and relieve you of the huge burden of figuring it all out on your own).

Make sure that you interview several candidates so you can find pros you trust, feel comfortable with and whose approach is a good fit for your situation. And even if you work with an advisor, make sure that you’re still involved and aware of where your money is going — and why.

So there you have it…heavily lifted and well-quoted…

Image credit – Wassim Loumi, Flickr