Habits of the Wealthy

My last two posts have mainly focused on the internal world (thoughts) of the wealthy. Success, however, is a combination of our attitudes (internal) and our habits (external).

Before I go any further into today’s post, I want to clarify a few things:

  • Wealth does not (automatically) equal success. If fact, you can find story after story of wealthy people who are estranged from their families and have no real friends. However, while the media loves to focus on those types of stories, there are many stories of wealthy people who are very successful in other areas of their lives as well.
  • You may not want to be wealthy. Wealth brings additional challenges that some people may not want. The habits and attitudes defined here, however, can help in any area of your life.
  • We are not wealthy (yet). We are doing better financially than we ever have, and I am confident that these habits will only improve what we have done.
  • These posts only apply to those in a free-market economy, such as America. Being born in poverty in a third-world country brings an entirely different set of challenges. People born in poverty, however, can rise out of it using these types of habits.

If you would like to be better off in the future than you are now, however, this post, and my previous two posts, should help.

rich habitsMy post today is based on some great research that Tom Corley has done. He spent five years studying the habits of the wealthy and the poor. Tom’s family was wealthy until he was about 10, then they lost everything overnight and lived in poverty the next 11 years. Tom didn’t want to live this way – he wanted to know exactly what wealthy people did to become and stay wealthy. Here are some key findings from his five-years of research:

  1. The wealthy live within their means. They save approximately 20% of their income and spend no more than 25% on housing, 15% on food and 10% on entertainment. This reminds me of one of my favorite quotes about millionaires:

    “Millionaires become millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.” -The Millionaire Next Door

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  3. 88% of the wealthy read at least 30 minutes per day about their career, education or for self-improvement. Only 2% of the poor do this. 63% listen to audiobooks as they commute, while only 5% of the poor do this.
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  5. 67% of the wealthy watch less than an hour of TV per day. 77% of the poor watch more than an hour of TV per day. Instead of watching TV the wealthy work on hobbies, or side businesses, or they volunteer and network.
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  7. And speaking of volunteering… 3/4 of wealthy people volunteer with an organization or cause they believe in at least 5 hours a month, while only 10% of the poor do this. Volunteering is a great way to network as well.
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  9. 62% of the wealthy are focused on at least one major goal every day. Only 6% of the poor do this.
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  11. The wealthy wake up early – 44% get up three hours before their work day begins. 3% of the poor do this.
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  13. 81% of the wealthy make and prioritize a to-do list the night before, while only 19% of poor people do. In addition, they focus on the tasks – they complete, on average, 70% of their list.

There are other habits as well, but these seven are a good starting place. If you were to pick one or two of these to begin focusing on, what would you choose?

My plans are to work on:

  • Listening to audiobooks as I commute
  • Waking up earlier
  • Prioritizing my to-do list the night before

I would love to hear what area you are focusing on – please leave your comments below!

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The Five Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans

Let me share with you a few book titles on my bookshelf that have to do with money:

  • Think and Grow Rich
  • How Rich People Think
  • As a Man Thinketh
  • Mind Over Money
  • Wired for Wealth – Change the Money Mindsets That Keep You Trapped
  • Conscious Finance

Did you catch a theme there? It was something I hadn’t really noticed before. Clearly, according to these authors, wealth has more to do with your mindset and your thoughts than your habits.

5 lessonsToday’s post deals with that same concept. I am going to review the book The Five Lessons a Millionaire Taught Me About Life and Wealth by Richard Paul Evans (#1 New York Times bestselling author of The Christmas Box). I picked up a copy at the local library and read it in one sitting. It’s an easy read (93 pages of content and an additional 70 pages of resources), but definitely worth your time.

Evans learned these lessons at a young age from a millionaire and went on to change his mindset, incorporate them in his own life, and make a lot of money. He teaches five lessons or principles that he says will lead all who follow them to wealth and financial independence. In fact, he says that all wealthy people share this common denominator – they understand the principles of accumulating wealth and follow them (and by wealthy he isn’t talking about those who win the lottery or inherit a fortune then go broke 5 years later, but truly wealthy people who earn and keep their wealth).

None of these principles are new – you won’t find anything earth-shattering in the five lessons. In fact, they will seem very ordinary to you. However, very few people actually follow them. I discovered areas that I can improve and plan to sit down with my wife so she and I can decide together how to better live some of these principles. I also plan to teach these principles to my children in ways they can understand.

Here are the five lessons:

Lesson One: Decide to be wealthy

Evans says this is the most important principle and that wealth is a mindset – it’s all or nothing. Bryan Tracy, another one of my favorite authors, says that it never occurs to most people that they can be wealthy and that “the primary reason for underachievement and failure is that the great majority of people don’t decide to be successful. They never make a firm, unequivocal commitment or definite decision that they are going to become wealthy. They mean to, and they intend to, and they hope to and they’re going to, someday. They wish and hope and pray that they will make a lot of money, but they never decide, ‘I am going to do it!’ This decision is an essential first step to becoming financially independent.”

Lesson Two: Take responsibility for your own money

You need to know how much money you have (by calculating your net worth monthly and annually), know where your money comes from and where it is going (budgeting). If you don’t control your money it will control you.

Lesson Three: Keep a portion of everything you earn

As George Clason says in The Richest Man in Babylon “a part of all I earn is mine to keep.” Evans says that millionaires save between 15-20% of their income and recommends that you start with a minimum of 10% of your salary and 90-100% of any side earnings.

(Consequently, the book The Richest Man in Babylon is one of my favorite books about money – you can read it for free here: http://www.ccsales.com/the_richest_man_in_babylon.pdf).

Lesson Four: Win in the margins

This principle is the one that will help you increase your nest egg as quickly as possible. The basic idea is to look for ways to increase your income and decrease your expenses. Evans goes through a number of different ways to look for deals and decrease expenses. He says that one of the best ways to save money on a purchase is to ask “Is that the best you can do?” This seems to especially be true with high-ticket items.

Lesson Five: Give back

Evans donates 10% (or a tithe) of his money and says that he has never felt the loss of the money but instead has felt specifically blessed for his contributions. My wife and I do the same thing and feel the same way that Evans does.

Those are the five lessons. Are you surprised at all by the simplicity? I would guess that you are. Like I said, none of the ideas are earth-shattering revelations. How many of them are you actually living, though? If you are intrigued by these ideas I highly recommend you pick up a copy of this book and make some plans to improve.

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Finding Financial Wellbeing

wellbeingA while back I was given a copy of the book Wellbeing – The Five Essential Elements by Tom Rath and Jim Harter. In this book Rath and Harter look at the five essential elements that shape our lives: Career Wellbeing, Financial Wellbeing, Physical Wellbeing, Social Wellbeing and Community Wellbeing.

In the introduction to the book the authors say “Wellbeing is about the combination of our love for what we do each day, the quality of our relationships, the security of our finances, the vibrancy of our physical health, and the pride we take in what we have contributed to our communities.”

For today’s post I am going to go into more detail about Financial Wellbeing.

Financial Wellbeing is about effectively managing your economic life. The authors note that it is difficult to be happy in any area of life if you cannot meet your basic needs (remember Maslow’s Hierarchy of Needs?), but that the amount of money we have, beyond a certain point, has less of an impact on our overall wellbeing than the concepts of “financial security” and effectively managing our finances.

“People with high Financial Wellbeing manage their personal finances well and spend their money wisely. They buy experiences instead of just material possessions, and they give to others instead of always spending on themselves. At a basic level, they are satisfied with their overall standard of living.” (Rath & Harter, 2010, p 154).

There are several important concepts in that statement. People with high Financial Wellbeing:

  • Manage their personal finances well
  • Spend their money wisely
  • Buy experiences instead of just material possessions
  • Give to others
  • Are satisfied with their overall standard of living

Let’s discuss a few of those concepts.

Give to Others

The authors cite three studies that show that spending money on yourself may temporarily make you feel good, but after time that good feeling fades. While spending money on yourself does not boost wellbeing, spending money on others does. When we help others out we feel good, even if it is just a little bit of money. For more detail on this subject, see “Why Giving Matters” (http://blog.ryanhlaw.com/why-giving-matters/).

Buy Experiences

While spending on material goods doesn’t increase wellbeing long-term, spending on experiences does.  Think about some of the material items you purchased over the past year, and then think about some of the experiences you purchased in the last year. Experiences can include trips or something as simple as going out to a nice dinner or going to a movie. Do the material items or experiences give you the most happiness? Most people would agree that experiences give them the most happiness. Things that come to mind for me are date nights with my wife, going to a movie as a family, and taking a trip over Spring Break. With experiences we get to look forward to the event, enjoy the event and have fond memories of it. It is interesting to note that for those that earn less than $25,000 per year experiences and material purchases show similar gains in wellbeing, but after $25,000 experiences provide two to three times the levels of wellbeing when compared to material purchases.

Manage Personal Finances Well

This concept brings us back to many of the things I have covered in this blog; budgeting, protecting yourself from identity theft, having a basic estate plan in place, saving for emergencies, investing for the future, etc. The authors also suggest you establish default systems, such as direct deposit, automatic deduction for investments and enrolling in your 401(k) at work so savings is automatic.

 

It is important to remember that all areas of Wellbeing (career, financial, physical, social, and community) work together. You can’t just focus on one area and ignore the others.

I recommend you read the book to see how you can improve your life in all five areas. http://www.amazon.com/Wellbeing-The-Five-Essential-Elements/dp/1595620400

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