Since 2004, I’ve been studying rich people and poor people.
In my Rich Habits Study, over the course of two years, I asked 144 questions to 233 millionaires in order to find out what it takes to live a happy, healthy and wealthy life.
While it’s important to know what to do, it’s also important to know what not to do.
Oftentimes, it’s the things you are doing wrong, in spite of the many things you are doing right, that prevent you from living the life of your dreams.
So, I spent another two years asking 128 poor people those same 144 questions.
After analyzing the volume of data I gathered over four years, I realized that living the life of your dreams is within everyone’s reach.
You just need to know what to do and what not to do.
Below are a few smart money tips from my Rich Habits books that will help you build wealth.
Tip #1 Become a Saver-Investor – In my Rich Habits Study I learned that there are four paths to wealth:
1. Saver-Investor Path
2. Senior Executive Path
3. Virtuoso Path
4. Dreamer-Entrepreneur Path
The Saver-Investor Path is the guaranteed path to financial independence and sometimes uber-wealth.
Success, as a Saver-Investor, has only two requirements:
1. Saving 20% or more of your income by living off of 80% or less of your income and
2. Consistently and prudently investing your savings.
According to my Rich Habits Study, this guaranteed-success path takes about 32 years to accumulate enough wealth ($3.3 million) to render you financially independent.
Tip #2 Change Your Inner Circle – According to Nicolas Christakis, former head researcher at Yale University, habits spread like a virus thorough your social networks.
Your social network includes your home, school, neighborhood, workplace, gym, etc.
If you want to become financially independent by saving money, hang out with savers.
If you want to become a Virtuoso in what you do, hang out with other individuals who are experts in your field or craft.
Tip #3 Don’t Supersize Your Life – When Conor McGregor fought Floyd Mayweather in August of 2018, he received a guaranteed payment of $30 million.
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Almost immediately, he supersized his life by purchasing a $17 million yacht.
In order to pay his taxes on the $30 million, McGregor had to dip into other money, because there wasn’t enough money left over after his yacht purchase for the tax collector.
When you receive a raise, bonus, promotion or higher paying job, don’t supersize your life by purchasing a bigger home, expensive cars, jewelry or any other stuff.
Save that increase in income for your future.
One way to do this is to commit to saving a percentage of your income, including raises and bonuses.
This way you stick to a consistent savings plan that will benefit the future you.
Tip #4 Avoid Want Spending – Want Spenders surrender to instant gratification, eschewing saving in order to buy things they want now: 60 inch TVs, nice vacations, expensive cars, jewelry, etc.
Want Spenders will even incur debt in order to finance the purchase of the things they want.
Tip #5 Avoid Lifestyle Creep – The definition of Lifestyle Creep is to increase your standard of living in order to match your increased income.
It’s a common Poor Habit among many who suddenly find themselves making more money.
The Rich Habit is to forgo the desire to spend your money today and, instead, sock it away into savings and investments that grow in value and provide financial resources that can be used in the future to maintain your future standard of living.
Once you spend your money, it’s gone.
When you hit a bump in the road, such as a job loss, you are then forced to sell your stuff.
If the stuff you purchased depreciated in value, you get pennies on the dollar.
One of my older and wealthier friends explained to me his rule for financial success:
“Same house, same spouse, same car.”
There’s a lot of wisdom in these words.
What they really mean is that no matter what good fortune visits you in life, do not change your standard of living.
Have a plan and stick to it.
Tip #6 Make Your Money Invisible – Open up a savings account.
Every time you get paid, immediately move a specific amount of your net pay into the savings account and then immediately invest your savings.
This will force you to spend only what you have in your main checking account.
This has two effects on your life:
- The simple act of moving money into a savings account and then investing those savings makes you feel good about yourself. Feeling good about yourself makes you happy.
- You will be forced to limit your spending to what is available in your main checking account. This forces discipline, which also makes you feel like a financially responsible adult.