One of the principles of wealth is spending less than you earn.
Of course for most Australians it’s the opposite – their money runs out before the month does.
Successful, wealthy people – be they property investors, business people or entrepreneurs – don’t just suddenly become rich and successful.
Success is a process that takes place over many years.
First you save, then you invest and over the years grow your asset base, then you move to the cash flow satge and live off your asset base of properties
Best selling author Thomas C. Corley explains there are certain habits that are responsible for the accumulation of wealth over one’s lifetime.
He calls them Rich Habits (which happens to be the name of his book)
One Rich Habit is spending less than you earn.
This is also probably what your parents taught you – live below your means.
Corley lists of ten spending habits that will keep you poor house:
- Charging ordinary living expenses on a credit card – If you are unable to afford meeting your ordinary living expenses and must resort to the use of a credit card to meet your monthly living expenses, you are by definition, living above your means.Accumulating credit card debt is the third leading cause of bankruptcy, behind a job loss (#2) and medical costs (#1).
- Spending more than 25% of your net income on housing costs.Housing costs include rent, mortgage, real estate taxes, utilities, insurance, repairs and maintenance.
- Spending more than 15% of your net income on food.This includes groceries and does not include prepared food.
Prepared food is part of your entertainment budget.
- Spending more than 10% of your net income on entertainment/gifts.This category includes bars, restaurants, movies, music, books, gifts etc.
Eating out and any prepared food you purchase is part of your entertainment budget.
- Spending more than 5% of your net income on car expenses.Car expenses include a lease, loan, insurance, gas, tolls, registration fees, repairs and maintenance.
- Spending more than 5% of your net pay on vacations.
- Spending any money on gambling.If you’re going to gamble it should come out of your entertainment budget.
- Going over the top on gift giving. Gifts are part of your entertainment/gift budget.
Sticking to your 10% budget will prevent you from going overboard on gift giving.
- Spending more than 5% on clothing.More than a few of the wealthy in my study had the Rich Habit of buying the bulk of their clothes at goodwill stores.
Many Goodwill stores sell high quality clothing at a deep discount.
It may require spending a few more dollars on a tailor, but it’s well worth the additional cost.
- Spontaneous spending is never a good idea.You need to take the emotion out of your spending habits.
There is always time to plan and shop before your spend your hard earned money.
Clearly many Australians have a spending problem.
The first step in controlling it is to set up a budget – track all your spending.
You’ll be surprised where your money goes.
The next step is to control your spending – but that’s not always so easy – is it?
However it’s one of the Rich Habits of the wealthy!