Habits and Strategies That Build Wealth Over Time
When you’re focused on personal finance, there are really only two types of habits: Those that build wealth and those that diminish it. Every financial decision made is going to move you closer or further away from your goals, and you have to learn which ones are which.
It’s important to adopt more wealth-building habits because it’s going to help you become wealthier. I say that because if you make the same financial decisions as rich people, you are probably going to see more wealth, as well.
In theory, this is true, but it’s easier to think about the right wealth-building habits than doing or adopting them. To do that, you need consistency and discipline.
There are tons of bad financial advice out there, too. This means that good and bad financial habits are slightly blurred, and you have to think about them both and learn the difference.
There are tons of different kinds of wealth that involve risk, leveraging too much, and stabbing others in the back. That’s not my goal here because it leads to bad relationships and financial misery.
The wealth-building habits I talk about are designed to help you grow your net worth and leave a financial legacy for your family for many years to come.
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1. Set Financial Goals
One thing I’ve found on my financial journey is that most people have a good concept of their financial goals. They don’t write them down or define the timeline for when they should be done.
You’ve probably said you want to be a millionaire, but what are you doing to make that dream a reality? There’s no clarity or definition here. The timeline could be by the time you pass away or by next year.
A better goal might look like this: Within 15 years, I want a net worth of over $1 million. To achieve that, I’m going to get rid of all my debt within six months and invest at least $3,500 a month in various mutual funds.
When you invest in your finances, you can achieve more wealth. The habit of setting goals may not be easy, but you’re going to like what it does for you.
2. Make a Budget
Financial freedom doesn’t come easily for most people. You’ve got to work hard on saving money so that you can build wealth for later. Budgeting can help you do that and is one of those wealth-building habits that people neglect.
Not sure where to start? Follow these budgeting tips to getting started.
How much you spend each day and month makes a huge difference for your personal finance goals. A budget is a guide to ensure that you have planned out where all your money is going.
I personally can attest to how powerful budgeting is because I’ve done it. Creating a strict budget for myself wasn’t easy, and sticking to it was even harder.
Everyone is shocked when I tell them that I got out of debt in a little over a year and increased my net worth by a lot since then, too.
While it might not be considered ‘wealthy,’ that one year did a lot for my long-term personal finance goals. Saving money is the beginning, and you don’t have to skimp on the things you want or like for the most part.
By automatically withdrawing a set percentage of your earnings into savings every month, you’ll see it grow without really needing to think about it. As you get better at budgeting and pay down your debt, you’ll have more money you can put towards savings and retirement goals.
3. Save More Than You Spend
Of all the wealth-building habits I’m going to talk about, it’s most important to save before spending money. In a sense, I call this paying yourself first, and it’s the first wealth-building habit to adopt.
Building wealth and saving your money doesn’t seem like they go hand-in-hand. It’s often last on your financial list to save money. In fact, you probably move whatever’s left from the checking to the savings at the end of the month and call it good.
The problem here is that method makes your savings based on your spending habits and not the other way around. If there are some months where you spend more than normal, you’re taking money away from your savings.
During bad months, you may dip severely into your savings and not have anything to show for it.
When you budget your savings amount, you know how much you can spend on bills, groceries, and fun things. With this, you are building wealth first and enjoying fun things later.
This long-term and simple approach to personal finance is one of the best ways to build wealth, and it’s not done enough.
4. Avoid Debt
Most wealth-building habits talk about debt at some point and let’s face it: debt is the opposite of wealth. Wealth building means that you’re earning interest on the money you make to increase your net worth.
If you incur debt, you’re increasing liabilities and paying someone else that interest rather than keeping it for yourself. Even if you can find no-interest debt options, you’re restricting the cash flow and money coming in, so you aren’t saving it.
That’s not to say you can’t use credit cards, but you’ve got to make the effort to pay them off every month. That way, you don’t get deeper into debt.
You can use them to build credit throughout the years if you do it right. This is a simple option for building good credit and can get the things you need, such as a new car or house and lower interest rates.
Credit cards aren’t for everyone though. If you find yourself spending more on a credit card than you would when using cash, opt for a cash budget instead.
5. Have Passive Income
Passive income is money you end up earning that doesn’t require a lot of work or your presence. The most basic type of passive income is the interest you earn when investing.
For example, when investing in mutual funds, the funds earn interest throughout the years. That means you’re making passive income from that investment.
There are plenty of options to get involved with here. For example, you can build a blog to generate affiliate income and the like, which increases your wealth over time.
Another way of investing is to have rental properties. You make money passively while you’re collecting rent checks.
Investing in rental properties does have risks involved. You’ve got to fix any problems that arise and may need to have legal counsel for evictions and other needs.
It’s possible to focus on simple wealth-building habits like this and make a steady stream of income through investing. Plus, you can use debt-free side hustles, blogs, and other options.
With most passive income options, it does take a lot of active work to get the ideas up and running. Then once it’s established you can lessen your foot on the gas.
Related: 7 Income Streams of Millionaires
6. Live On Less
You make a certain amount of money and know how much that is every month. The goal now is to build wealth by living on less than what you make, which is simple if you think about it.
If you spend everything, you’re broke. It’s often better to save whatever you can, spend less, and put it all in your savings.
Making these financial goals are going to ensure that you have more money during the course of your life. Whether you’re planning for retirement or want to take a big vacation, living on less money is a good thing.
You’ve got to learn how to do this, and it isn’t going to be easy. However, when you see that you’re starting to save and your accounts grow, you’re going to be more interested in continuing.
Related: How to live on no money and thrive.
7. Invest Consistently
Regardless of what anyone tells you, investing consistently for the long-term is the best option. Sure, some people may earn tons of money day-trading and timing the market, but these instances are rare.
Plus, these people probably know more about investing or simply got lucky.
To build wealth, begin by contributing to a retirement account, such as a ROTH IRA or 401K. You’re going to see improvements fast, which helps you think more about saving rather of spending.
Related: Can you lose money in a Roth IRA?
If you’re not sure how it all works, consider meeting with a fee-only financial advisor. He or she can take the time to figure out your financial plan that focuses heavily on investing consistently and your wealth in general.
9. Focus on Longer Terms
When wealth-building, you’ve got to be focused on the long-term financial goals. When I say that, I’m talking about at least five years, but multiple decades would be better.
Wealth-building habits are designed to be done over long periods of time. If you cut corners and try to beat the system, it’s going to take longer and more work for you to achieve success.
Each decision you make can have financial consequences.
When you’re faced with any financial decision, start asking yourself which of them aligns best with your financial goals over the course of a particular time-frame. Don’t stray from your financial plan to hopefully get a short-term gain because you’re sure to lose wealth doing it.
10. Stop Comparing
Everyone compares themselves to others, even me. Each time I do that, though, I end up making bad financial decisions.
Don’t spend so much time focused on people who have better cars, bigger houses, or nicer clothes. If you can’t afford those things, you don’t really need them.
In time, you may be able to get something better, and the trick is to know when that is. You don’t want to go into debt to try to have what others have.
Those habits aren’t good and don’t do anything for building wealth. Work and concentrate on what’s ideal for you at this moment.
You’ve got your financial plan, and life is going to be much easier because of it. Wealth building isn’t possible when you’re always comparing yourself to others.
11. Understand Personal Finance
It’s okay if you don’t know much about personal finance. However, it’s never too late to learn!
Check out this easy to understand Financial Literacy 101 guide to start.
If you wanted to be a professional golfer, you would likely take lessons and spend hours practicing. To learn a new skill, you have to be educated and practice it.
Earning money is going to be a lot easier when you understand all the ways to do it. You may not need any extra cash now, but investing for your future is one of the habits you’re hoping to achieve.
Building your wealth isn’t an overnight thing. It will take years of work and effort to make it happen. It’s time to focus on that habit and stop listening to other people who may have different goals.
Having money is a great thing and is a necessary tool for survival. The goal, though, is to save money without getting into debt, and most people aren’t sure where to start.
You need to have enough money to cover regular expenses but get in the habit of setting money aside rather than spending it all. Your financial future is yours and yours alone.
Find a way of making your money last longer. To do that, pay yourself first, invest in many different things, and focus now on your finances.
You can be debt-free, stay debt-free, and even create long-term goals. You can live on what you earn, especially when you believe that it’s helping your future.
Your finances may not be perfect now, and they may never be. However, when you invest in yourself, you’re going to get better and be closer to achieving your dreams.
These wealth-building habits are essential and a great way to begin the process. Wealth-building isn’t easy, but it is possible with timing, effort, and focus.
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