Everyone wants more money. Everyone wants to be able to retire comfortably. Everyone wants everything. And they want it now!
But when reality set s in, we all know that we can’t, and probably shouldn’t, get everything we want.
As the Rolling Stones once sang, “you can’t always get what you want, but if you try sometimes well you might find, you get what you need.”
This rings true especially when it comes to building wealth. Unless you inherit enormous sums of money, building wealth takes time. Wealth comes from simple, yet smart, financial habits.
Here are six financial habits you should enact if you want to build wealth.
Save, Save, Save, and Save Some More
If you look at any wealthy guru, you’ll see that they have money saved. The smart ones don’t necessarily live extravagantly. Instead, they live frugally and well below their means. They know you can’t make money without saving money. Savings can (and should be) diversified between 401(k)s, IRAs, general savings, etc. There are no get rich quick schemes that build wealth.
Playing off of my previous point, if you aren’t currently saving money, you need to start. The best way to get in the habit is to make it automatic.
Set up your bank account to transfer funds to savings, investment portfolios and retirement accounts as soon as your paycheck comes in. Out of sight out of mind. This way you don’t overspend and not save anything. You can do this relatively easily with an online bank, such as Discover Bank – you can earn .90% on your spare cash or even open a retirement account through them.
Remember: Needs Not Wants
Live within your means and be frugal. If you want it and it’s not necessarily a need, then don’t get it. If you really want it, then save up to purchase it.
You may think you “need” a brand new mixer, but if your current one still works, then you don’t really “need” a new one. You just want one.
Not buying things because you don’t need them takes some getting use to, but if you don’t need it, don’t buy it. This adds to your savings and will lead to wealth and greater financial freedom. Plus this habit will get easier after you tell yourself “no” to your wants the first few times.
Track Your Spending
If you don’t know what you are spending you won’t know how much you can save or how to allocate your funds. You may only think you spend $100 a month eating out, but you might actually be spending $300 a month. By tracking your spending, you can see where you can make some cuts and start saving more.
Change Your Mindset
This is the hardest habit to establish. But it might be the most important.
Most of us naturally want everything, and have a spend first, save last mentality. To build wealth you need adopt a save first, spend last mentality.
With your take-home pay, pay yourself first. Put money toward your financial goals first, bills second, and then take whatever is left to spend.
Changing this mindset will change how you look at every purchase, savings goal, and investment. This is usually for better, especially if you are paying off debt, saving for a house, or increasing your retirement portfolio.
Pay Off and Avoid Future Debt
This is critical to financial freedom and to how much you can save. Home loans and student loans are not usually considered bad debt, but they are still a hindrance to your saving goals. With a majority of Americans having high credit card debt, this is what you should work to reduce first. The rule of thumb is to pay off those loans with the highest interest rates first and work your way down in order to save the most money. Then avoid future debt so you can put your money toward building wealth.
Habits take a while to change and you have to be diligent about it. Once you get into a habit it’s easier to save and harder to spend money. Remember that Rome wasn’t built in a day and neither will your wealth be. It will take time, but if done smartly you may be able to grow it faster than you had originally planned.
Are you using these financial habits to build wealth? What other habits are essential to build wealth?
Photo courtesy of: Michael Thomson
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