Do you want to live like the young, rich, flashy millionaires who live fast and die young? Or do you want to build a stable fortune? Sure the life of fast cars and expensive toys is fun, but does it last? Only until the next bear market.
In a recent Phoenix Cos. survey, all six types of millionaires shared one quality. Living below their means. It may seem obvious, but to be rich, you have to spend less than you make. That is, you have to have money left over to save and invest.
Being rich isn’t about what you have, it’s about what you save. But there must be something more, right? What else do millionaires know that you don’t? What’s the secret? Surprisingly, the secrets to being a millionaire aren’t secrets at all, they’re common sense. Here are nine more habits shared by the wealthy:
Remember, Money Means Work
Being wealthy is a full-time job itself because you have to keep track of where your money is and what it is doing at all times. In a way, it is practically like parenting. If you invest in the stock market, you have to keep a close eye on the health and well being of your investments. Smart millionaires don’t dump a lot of money into something- stocks, bonds, a new restaurant enterprise, or a patent for silent Velcro, without following what happens. They are always actively managing their portfolios and ventures.
Know Where Your Money is Going
What would you think of a company that had a large percentage of its income unaccounted for each quarter? You would think that company was completely unprofessional and definitely doomed. Do you know where every single dollar of your monthly income goes? Much of it is frittered away here and there, and you may not even really realize how much is spent that way.
Budget Wisely
Be aware of what you can do to cut expenses here and there, and put away the money you save, by investing it or storing it in an account. Not every wealthy person drinks champagne like water–any of them like water just fine. That’s how they became wealthy. I am not saying you can never drink champagne, I am saying you don’t HAVE to. Remember, being rich isn’t about image. It is about what you have in the bank, not how much you spend.
Get Rid of All Debt
I can’t stress this enough. You can’t enter the race to wealth until you have gotten to the starting line of initial financial stability in the first place! Debt starts you off several feet behind. You have to start with a clean slate to be able to begin amassing your fortune. Pay. Off. Your. Debts.
Compound Interest is Your Friend
Compound interest is interest paid on the original amount deposited and on the additional amount accrued. Even if you don’t think you can set aside enough money to make it worth it, you can. Just to give you an example, if at the birth of your child, you put $5,000 in an account earning 10% compound interest, by the time your child is out of high school, they will have over $30,000 in their account. That’s enough to go to college, to help with their first house payment, or to pay for that big wedding. If they let it sit until they were 60, they would be a millionaire.
Don’t Pass Up That 401(k)
There is no reason not to take advantage of your company’s 401(k) retirement plan if they offer one. A percentage of your salary is contributed each year, before taxes are taken out, and oftentimes your employer will match a certain percentage of funds as well. Then that money gains interest over time and you have some money saved for retirement, plus, in the present, the amount of taxes you pay is reduced because the money is taken out before taxes. So a 401(k) is doubly wise.
Get Yourself Started On an Individual Retirement Account
Similarly, you can have a percentage of your annual income automatically deposited into a separate savings account, and it is not subject to income tax as long as you leave it there. Though it will be taxed once you withdraw it, by the time you do you will probably be in a lower tax bracket, saving you money. Your IRA fund can be in a bank, or in stocks, bonds, and mutual funds.
Or Open a Roth IRA
A Roth IRA is similar to a regular IRA only with more conditions to be met. Your eligibility is based on your income, and is different for singles and married couples. The maximum amount you can contribute starts at $3,000 for the first two years and increases to $5,000 by the 6th year, then $500 a year after that. Contributions to a Roth IRA are not tax deductible; however, earnings and withdrawals are not taxed.
Be Patient With the Stock Market
You always hear about people becoming millionaires over night through the stock market. That may happen sometimes, but more often, the stock market is a deftly nuanced game that involves guaranteed rise and fall. But if you pull through and don’t panic and sell at the first sign of a price drop, you can slowly build a balanced portfolio and your fortune. You can even be savvy and buy stocks at a discounted price during a bear market. The market will always go up. If the stock market can recover after 1929, it can recover from anything. Patience, and wisdom, are key.
Many of the wealthiest Americans are frugal spenders, knowing where to spend money, and where to save it. They treat themselves to some luxuries, of course, but they don’t overdo it. They use their money wisely so that it doesn’t run out, and it keeps working for them. They started saving up their money years ago, and now, when it comes time for them to retire, they are set to have a grand old time. If you start following their basic money habits now, you, too, can retire a millionaire.
© 2008 AmericanCreditFoundation.org®. Michael G. Peterson is a co-founder and Spokesman of American Credit Foundation, an IRS 501 (c)(3) non-profit consumer credit counseling organization that has assisted thousands of individuals and families with their financial situations through seminars, education, counseling services, and, debt management plans. For more information, and free consumer resources visit www.americancreditfoundation.org
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