Building wealth, unlike inheriting it, is a matter of habit. Because we are creatures of habit, it is very probable that we inherit financial patterns of behavior from generation to generation. Thus in a family where financial habits build wealth, prosperity calls. Built upon personal finance habits, wealth is not a matter of chance. So what are these habits of financial wisdom that drive prosperity? According to financial planners, consistently following practices in your lifestyle not only produces wealth but also solidifies and stabilizes its flow.
1. The Less Debt the Best
Debt is inevitable. More than 80% of consumers owe some kind of debt. Student loans, auto loans, mortgages, and credit cards, are forms of debt that most people acquire at least once in their lives. The interest rate you pay on loans and credit cards depends on your credit history and income which in turn depend on your habits of mind. While it is a great convenience to be able to pay for goods on a monthly basis instead of having to purchase them in one lump sum, too many loans and credit cards can hurt you even if you are a millionaire. In many cultures, credit is not a regular financial practice like it is the US. Don’t abuse your credit, pay what you owe as soon as possible and your wealth will not leak out of the nest.
If you or your business have credit cards with high interest rates, the best thing to do is to pay the balance and leave them open; don’t close them or you’ll hurt your credit and that of your business. Do whatever is necessary to relief yourself of bad credit card debt. If you own a business, it may be necessary to find nonprofit business debt consolidation programs to help your company climb out of debt and stay in business. That is the first concern and habit of mind to follow when it comes to building wealth.
2. Change your mindset
Have you ever heard the phrase “pay yourself first?” No matter how big or small your paycheck is, invest in your future, first and foremost. Retirement, emergency funds, three months of living costs, your biggest financial goal, these are the payments you make to yourself. A percentage of your check should be devoted to building wealth and keeping it. However, you must reverse your way of thinking to achieve this mentality.
Most people don’t save any percent of their salary. They are just not in the habit of saving. Benjamin Franklin’s refrain “A penny saved is a penny earned” is just as relevant today as it was in 1787. Financial experts will agree this is the most indicative skill of robust financial wellness.
That doesn’t mean you’re not going to pay your bills and have as good a life as possible. However, you must live within your means. However, saving and investing are the two most critical wealth-building habits for prosperity. No matter how small an investment and a savings amount you consistently make, when you’re in the habit of doing so, as your income base grows so will your savings and investments.
3. Set your Compass
Performance athletes know where they want to go. They have goals, and they practice towards that vision. It becomes their mission. Whether Olympic or professionally, their performance is based on hours and hours of practicing the same thing over and over until they achieve perfection or close to it. The same is true of building wealth. Having goals for your money means asking yourself what you want to accomplish and how long it is going to take you to get there. You need to have a plan. For example, you want to have a savings of 3 months of living costs for an emergency fund in 6 months. Calculate how much you need to save every paycheck to accomplish this goal. Every time you meet a financial goal, such as saving for a vacation, an emergency fund or a new car, the brain will create link saving to success, and every target will be easier to meet.
4. Make your own rules
Psychologists who study human behavior have noticed how people develop and live by their personal rules of the mind; this is called heuristics. Based on logical reasoning, these rules include safeguarding your money. For example, some people have a rule about not spending more than $50 on a pair of shoes, or not paying more than $15 on baby clothes. Your rules for financial wellness should be made carefully after observing your spending habits. If you spend more than you ought to on eating out or take out, make a rule to eat at home 4 out of 7 days of the week, or only go out to eat on weekends.
5. Be the Millionaire Next Door
If you believe millionaires are always flaunting mansions, yachts and Rolls Roys, think again. There may be many “secret” millionaires on your path every day, and you can’t tell them apart. That’s because they don’t have an interest in being singled out for their flashy conduct. Most millionaires do more saving and investing than spending; they live “below” their means.
Happiness is not found in buying new things all the time or being famous, but in finding harmony and peace within a comfortable, well-balanced life.
6. Track your finances
Tracking your finances is more than checking to see what is coming in and what is going out. Expenses fall into specific categories within a budget. So when you go shopping for shoes but your “clothing and shoes” category maximum has already been reached, what do you do? What percentage of your income should you devote to retirement and investments? These are questions financial advisors help you figure out according to your income and outputs.
Many people don’t look at their receipts. They have no idea how much of the budgeted amount for that expense category has been filled when they make a purchase. Today it is easier than ever to track inputs and outputs with online banking and software Apps. Budgeting is the skills of tracking your expenses daily and weekly to support your monthly and annual budgets.