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When I think about the habits of self-made millionaires, I picture someone like Elon Musk or Richard Branson. People with IQ’s in the stratosphere, who work 19 hours a day and have a team of hundreds.
But that’s not always the case. In fact there’s probably a self-made millionaire in the works sitting near you at work. You’re both grinding it out each day, and your salaries are in the same neighborhood.
But one day she’s gonna walk into the director’s office and slide her resignation onto his/her desk.
She’ll be done. Retired. At 39.
Wait, what? What is she doing that’s so much different than you and I?
She didn’t suddenly inherit a fortune. And she doesn’t play the lottery. She just adopted certain habits. Millionaire habits. And without fail, she repeats them every month.
7 Habits of Self-Made Millionaires
1. They Have Specific Goals – and Act on Them
“The days are long, but the years are short.” – Gretchen Rubin
Haven’t you had those days that seem like they’ll never end? Where you glance at the clock, thinking it’s gotta be after 4:00? And it’s only 2:10.
But when you’re reminded of something that happened last year, or a few years ago, haven’t you sometimes thought, “Wow, has that been a year already?”
The most expressed regret by senior citizens is that they never lived the life they wanted. And a big reason for that is that we coast through life in a reactive mode.
Without a plan or some kind of goal for the next few years, we’re swept up in the day to day urgent stuff. While the important stuff – like career aspirations, relationships, and personal goals, slip by.
Your plan wouldn’t be something vague, like “I’m going to earn $125,000 per year within five years.”
It’d be something real and achievable. Something that’s going to add value to your life, like:
- I’m going to create a website for my side business and have 5 clients by the end of this year.
- By December 31st, 2019, I’m going to be debt free and have an emergency fund.
- By the end of this year, I’m going to complete 21 credits towards my degree.
Your goals will change every few years. Today it might be to completely eliminate your debt. Next year, it may be to build up to 10% of your income invested. And then 20%.
Having a plan makes a lot of smaller decisions fall into place. Things like:
- How should I spend the weekend?
- Should I watch 4 hours of TV, or spend a few hours on Facebook tonight?
- Can I afford a new living room set right now?
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2. They live on a budget
“If you aim at nothing, you’ll hit it every time.” – Zig Ziegler.
Zig Ziegler may not have been referring specifically to money when he said that, but he might as well have been.
See if you think these two stats are related:
- People making less than $75,000 per year are much less likely to use a budget.
- Almost 80% of us live paycheck to paycheck.
If the people making less than $75,000 don’t have a clear idea of where their money’s going, what are the chances of them ever rising above paycheck to paycheck mode?
So personal goals ensure that our time and energy aren’t wasted, but the other key is knowing where every dollar is going.
A written budget is like having a coach who’ll tap on you’re shoulder and say one of three things:
- You need to adjust your expenses.
- You need to adjust your lifestyle.
- You need to bring in more income.
A budget doesn’t need to be fancy. It just needs to work for you. You can use one of the free tools like Personal Capital, your own spreadsheet, or just write it in a notebook.
But being consistent is the key, so whatever method you’ll stick with is the one to use.
However you record your budget, one way to really gain control is to use the zero-sum method. When you use this method, you treat every dollar – even pocket money, as an expense.
So each time you’re paid, every dollar is assigned and “spent”.
Many people view a budget as too restrictive, but it’s actually just the opposite.
- It removes any doubt about how you’ll spend your money, so it’s a big stress reducer.
- If you have a partner, it reduces friction because you each have a clear understanding about your money.
- It clues you in to making small changes so that you’ll keep moving toward your big goals.
When you start directing every dollar where you want it to go, that’s when you begin to aim at something.
3. They systematically pay themselves first.
When you write out your budget, most people start by listing their biggest expenses. So a typical budget might start off with:
Saving, either for retirement or your emergency fund is usually so far down the list that it becomes an afterthought.
“If we have anything left over this month, we’ll try to save it.”
Instead, Warren Buffett suggests, “Don’t save what is left after spending; spend what is left after saving”.
Paying yourself first is just reversing the order and making savings the number one expense.
Why pay yourself first?
It’s simple. You don’t have decades to think about it. One of the worst money mistakes you can make is to delay savings.
Just the act of starting regular savings early enough will mean a difference of hundreds of thousands of dollars.
A simple way to get started is to use a formula like the 50/30/20 approach. This way you’d dedicate 50% to necessities, 30% to wants, and 20% to saving and debt.
The 20% is a mixture of savings and debt payoff (other than mortgage). So once you eliminate credit card debt, you’d be able to ramp up your savings.
Or if you can’t manage 50/30/20 initially, maybe 60/30/10 would work. Even initially, 65/30/5.
The point is, to have a consistent system. A habit that you live by with every single paycheck. This way, you’re allocating money (especially to yourself) before you get it, not after.
What if you still can’t manage the habit of saving?
Suppose you write out your budget and the math just doesn’t add up? You assign a percentage to savings, then you run out of income when you still have three or four bills to pay?
Would you believe that can be a good sign?
Your budget is doing exactly what it should be doing. Alerting you to a problem – living beyond your means – that can be fixed.
If you’re really struggling to pay yourself first, here are a few ideas that may help:
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There’s one area of saving you can’t delay, even if you have credit card debt:
You’ve gotta have a dedicated emergency fund.
Even if you shoot for $1000 to begin with, it’s going to bail you out of the unexpected car repairs and other emergencies that blow up your budget, or add to your debt just when you start making progress.
Here’s how I was able to easily start my emergency fund where I barely noticed the contribution.
The other area to save that you can’t ignore is your employer sponsored 401k, especially if they offer a matching contribution. If they’re offering you .50 cents on each dollar contributed, that’s free money you can’t pass up. Where else can you get a 50% profit immediately?
And once you contribute enough to get their maximum match, direct as much as you can to a Roth IRA where it’ll grow tax free.
The key to paying yourself first is to make it automatic. Have a regular contribution drip into your emergency fund and savings accounts that you don’t need to manage. And each time your income increases, or you’re able to save somewhere else, add another percent or two.
4. They avoid debt.
The problem with accumulating a lot of credit card debt is that it eliminates choices in your life.
- Want to take up skiing? Nope, can’t afford it.
- Want to take a course to improve your skills? Not this year. It’s not in the budget.
- Want to get something nice for the house, or spend a weekend away? Yea, right.
It sucks living like that!
Letting debt get out of hand makes it impossible to put yourself in a better position. One where you have an emergency fund, a regular deposit into savings, and a little left over for the weekend.
Here’s a strategy to eliminate debt that uses some of the same habits we just talked about:
- Establish a goal. What do you want to do in life that debt is preventing you to do. Name it. Write it down.
- Write out your budget. Use the 50/30/20 method if you can, and split the savings portion between minimum payments on your debt, and an emergency fund.
- Once you accumulate $1000 in your emergency fund, use the snowball method to eliminate your debt.
What’s the snowball method?
Here’s a quick rundown:
Let’s say you owe these amounts, with these minimum payments:
- Credit Card #1 – Owe $2300 – Minimum payment $185.00.
- Credit Card #2 – Owe $1600 – Minimum payment $139.00.
- Credit Card #3 – Owe $750 – Minimum payment $55.00.
- Credit Card #4 – Owe $275 – Minimum payment $25.00.
You’d make the minimum payment on Credit Card 1,2 & 3, but you’d throw every penny you can at Card #4 since it has the lowest balance. Every bit of overtime pay, bonus, garage sale proceeds…anything.
Once Card #4 is paid off, then use the same method for Cards 1,2 & 3. Minimum payments on the two higher balances, and every penny you can at the lowest balance until you eliminate it.
You can debate about interest rates vs balance amounts, but eliminating the smallest to the largest is a good way to build momentum and get a quicker win.
Here’s a few more tips to help eliminate debt quicker:
- Try calling the credit card company and just ask for a lower rate. If you have a decent pay history they’re likely to lower it. It’s worth a five minute call.
- Take a closer look at your lifestyle. Do you need cable TV? How often do eat out, or order in, go to the dry cleaners or stroll around the mall. Sometimes it’s possible to find several hundred dollars a month just by adjusting our routines.
- Ever considered a side hustle? A few hundred extra dollars each month can shave off a few years.
Make it a challenge – if you have a partner, get together as a team and have regular budget meetings. Strategize together over the coming week. Invent new ways to spend time that don’t involve forking over a lot of cash.
5. They have more than one income source.
The obvious reasons are:
- Pay down down debt.
- Have a backup income that you can ramp up if you lose your primary job.
- Try out a new field before you decide to make a career change.
But if you want to move beyond exchanging hours for money, and start building wealth, you’ll need to have your money work for you. And the sooner the better.
You’ve heard the expression, “It takes money to make money “, right?
Most millionaires will tell you that the first $100,000 or the first million was the hardest. But once they started to accumulate savings, their net worth starts to increase much quicker.
So their second $100,000, or their second million, grows in a fraction of the time.
Their money, and the compound interest it’s earning, is working for them.
So sure, it’s a big shift to start coming home from a full work day and start thinking about a side hustle.
But if a side hustle – even if it’s walking dogs – can accelerate the time it takes to eliminate debt, build an emergency fund and put you in a position to start building savings, then it could bring major changes to your life.
Your side hustle doesn’t have to mean spending the next 25 years driving an Uber at night, or working part-time at the dollar store.
Here are some tips on generating income without spending hours away from home:
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6. They Schedule Their Time, and Protect it
Having some kind of goal for the next few years is an important part of staying motivated.
But it’s one thing to write down a goal. Achieving it takes consistent action. Every month, every week and every day, we all make choices about how to spend our time and energy.
You want to make choices that align with your goals, but life gets in the way. We get sidetracked with all the urgent things, and the important ones (to us) are neglected.
When I decided to start this blog for instance, I became frustrated initially that I wasn’t making progress quick enough. It wasn’t that I couldn’t figure out how to do things. I just had trouble putting the time in.
There’s always three other things competing for your time. And when I did sit down to work, I’d let myself get distracted when the first email popped in.
It’s not enough to write to-do lists and hope to get most of it done. The way to actually complete tasks is to assign each one a specific time.
A simple method is to enter tomorrow’s tasks into Google calendar. Assign each one to a 30 or 60 minute block. And then do only that task during that time. Here are some tips on using time blocking.
Some things we just can’t schedule, like if we have kids at home. But trying to multitask through work things is stressful, and mentally exhausting because you’re constantly changing focus.
Bill Gates and Warren Buffett were both asked what personal habit contributed most to their success. They each replied that focus was the one thing that above all, enabled them to succeed. They get things done because they devote their full attention to them for a dedicated time period.
7. They use tools to gain every advantage.
It’s one thing to become aware of new ways to get things done. But one of the habits of self-made millionaires is to actually put them to use.
If you drove past a construction site twenty years ago, you’d hear non-stop hammering. Today, you’d barely hear the sound of air tools driving nails with a single tap, in a fraction of the time.
So a builder who ignores modern tools is wasting time. And money.
And if we want to be successful, we need to leverage tools that’ll help us manage money more effectively.
We can use a plain old notebook to keep track of this month’s bills.
But what about things like:
- Knowing your net worth – the most important indicator of your progress.
- Knowing why it went up or down last month.
- How your debt payoff is going.
- Whether you’re paying too much in fees for your accounts.
Trying to keep on top of all this may sound like a headache, and that’s probably why most people don’t bother.
But there are some pretty easy to use apps that’ll do that for us. Both Personal Capital and Mint are both free. You don’t pay a dime to use them, and you can use either one at home or on your phone.
I use Personal Capital because it has the features that Mint has, but it also shows all of your investment accounts and figures that into your net worth.
At first, it seemed odd to me that a tool this full-featured was free. But they make their money from customers who choose to have someone assigned to actively manage their account.
But that’s totally optional. I don’t pay anything to use it.
It is pretty cool to see a dashboard of your whole financial picture. To spend less time, and yet have a much better idea of how you’re doing each month.
I remember as a kid, having my parents pull to the side of the road to unfold the paper map as cars whizzed by. I still find it amazing how GPS now talks us through every bend in the road!
That’s exactly what a money app can do. Remove a lot of the confusion and give you a clear vision of where you’re headed.
If you’re living paycheck to paycheck now, then talking about the habits of self-made millionaires may seem far-fetched. But the point is, that by adopting some of the same habits, we can trigger huge changes in our life.
Changes that enable us to stop focusing on the small picture – this month’s bills – and start seeing the big picture – the ability to handle emergencies, long-term savings, work that interests you, and the ability to do the things you want.
The biggest reason people don’t get what they want is that they don’t define what they want. Wealthy people are clear about what they want. They create a plan, adopt habits that align with it, and see it through.
How about you? Do you have a plan for the next few years?