Ever wonder how the wealthy people made their fortunes? Talk to a few of them and you’ll realize no two wealthy individuals followed the same path to freedom. But financial success isn’t a total mystery. There are a number of common habits among the financially successful that tend to lead to wealth, if you just pay attention and apply their ideas to your own investing strategies.
Here are the top seven habits of wealth builders and financially successful people.
1. Long-Term Thinker
Becoming wealthy over time isn’t an accident. It takes careful planning and long-term thinking. Those individuals who consider what their financial future will be like in ten or twenty years, and take action on those plans and thoughts, will have a much better shot at attaining those goals.
Getting financial smarts at a young age, and saving early on in one’s working career, is a great example of thinking long-term. Sure, you’ll have to reduce your spending today if you want to save money.
However, long-term thinkers know that converting income into savings increases their options in the future and leads to wealth. Whether it’s saving for a down payment on a house in five or ten years, or socking away money for a retirement still decades away, planning for the future reduces a lot of chaos in one’s financial life.
The long-term thinker tends to have patience and perseverance when pursuing financial goals.
If you could dig inside the average wealthy person’s finances you would see they have financial systems that work. They put their bills on auto-payment so they get paid on time, every time. Each avoided $35 late fee makes them $35 wealthier compared to the average disorganized person.
They invest money periodically by having it deducted from their paycheck or debited from their checking account. Automating investments each month is probably my favorite trick to building wealth.
I manage to continue investing month after month, even during the 2008-2009 Great Recession, when the stock market went from bad to worse on a near-daily basis.
Wealthy people always track their finances and investments. They have a pulse on where their money is coming from and where their money is going. Some use spreadsheets, online apps, software, or even simple sheets of paper to keep track of their budget.
For investments, they know how to access their 401k and IRA account balances and pay attention to account activity. Methods of tracking investments vary widely, but the point is that they pay attention to what their investments are doing, and react accordingly.
4. Detail Oriented
Those that are financially successful think big and plan for the long term while still paying attention to the details. They know when cash is sitting idle in a savings account and needs to be invested for a higher rate of return.
They notice when the cable bill or phone bill is higher than normal and investigate why they’re paying more for the same level of service (and then call to get a better deal!).
Before signing long-term contracts (or any contract for that matter), the wealthy look at the terms and conditions to ensure they’re getting what they expect, and won’t be facing an expensive surprise down the road.
5. Risk Taker
Wealthy people take smart risks. From real estate or stock market investments, to starting a new business that might turn out wildly profitable, you’ll see a good bit of risk taking among the financially successful.
A huge impediment to growing wealthy is the fear of possibly losing money. Take a very conservative investor that earns 2% in certificates of deposit or short-term Treasury bonds, and they will rarely lose any money. But compare the returns to an investor that invests in the stock market for an average 8% return.
After 30 years, the conservative investor can turn $10,000 into $18,000 while the risk taker can convert the same $10,000 into $100,000. Over the long term, which type of investing is really riskier?
Outside of taking risks on investments or businesses, some ordinary people have attained financial success by packing up and moving to an area with excellent employment opportunities. If you’re in the tech field, maybe that means Silicon Valley. If you’re in the skilled trades and have a knack for welding (or can learn that skill), the oil fields of North Dakota might be the path to riches.
Riches aren’t guaranteed, but exposing yourself to more opportunities for greater income certainly increases your odds of financial success.
6. Education Lover
Getting a good education is a very common trait of the wealthy. You’ll have to pick a degree in a field with high earnings potential if you want to maximize your chances of growing wealth. Chemical engineers, attorneys, and doctors will make a lot more than English teachers.
Back in my working days, I could easily see the benefits of education by looking at the salaries of my coworkers. The technicians and drafters, that had a high school diploma or associate’s degree, made about half of what engineers with four-year degrees earned.
Education isn’t all about making more money in your career. Learning new skills like how to manage your own investments, fix things around the house, and troubleshoot your own computer, can save you a lot of money over time.
Most wealthy people tend to have a vein of DIY in them (in at least some parts of life).
7. Balanced Spender
I was tempted to make “frugality” the seventh habit of financially successful people, but I think “balance” is more appropriate. Saving money and being frugal is an exceptional trait, but if taken to the extreme, it can cripple an individual’s ability to enjoy life and invest in themselves.
Balance is being able to spend money effectively, when it makes sense. Frugality alone won’t make you a wealthy person if you neglect your appearance, health, home, and friends just to save money.
Does it take all seven of these habits to become wealthy? No. But becoming wealthy without most of these habits would prove very challenging.
Do you know another habit that financially successful people employ in their daily lives? What’s another idea we can add to the list?