By Be The Budget
When it comes to personal finance, there are basically two types of habits: wealth-building habits, and wealth-diminishing habits. In other words, every financial decision you make will either move you closer to wealth, or further from it.
So, it stands to reason that the more wealth-building habits you adopt, the more likely you are to become wealthy. I mean, if you only ever make financial decisions that have been proven to make people rich, then you should end up rich too, right?
In theory, yes.
But here’s the thing, while it’s easy to talk about wealth-building habits, actually adopting them requires a whole lot of discipline and consistency.
Beyond that, with a seemingly endless amount of bad financial advice out there, the lines between good financial habits and bad financial habits have gotten a little blurry. And that’s exactly why I decided to write this article.
In this post, I am going to lay out 10 of the top financial habits that have been proven to help people build wealth; the wise, and honest way.
In other words, I’m not talking about the kind of wealth that requires all sorts of risk, stabbing friends in the back, or leveraging yourself to the hilt. More often than not, that just leads to financial (or relational) misery. Rather, the habits in this article are meant to build wealth, and a meaningful financial legacy over the course of your entire life.
So, if you’re in this financial game for the long haul, and that all sounds good to you, then keep reading.
1. Set Better Financial Goals
One of the things I have found throughout my personal finance journey, is that most people have a general idea of their financial goals. That said, very few people actually write them down and clearly define a timeline in which they would like to achieve said goals.
For instance, it’s normal to hear someone say, ‘I want to be a millionaire’. But, the problem with goals like this is that they lack definition and clarity.
I mean, if you want to be a millionaire, what’s your timeline for achieving that goal? Also, what kind of steps are you going to take on a consistent basis in order to achieve it?
A better goal would look something like this:
“Within the next 15 years, I am going to have a net worth over a million dollars. In order to achieve this goal, I am going to get out of debt in the next six months, and invest a minimum of $3,500 per month in mutual funds with an average annual return over the last 10 years of at least 10%.”
Seriously, between the first goal and the second, which person would you expect to actually become a millionaire? I would bet on the second person.
Plain and simple, if you want to build wealth, you need to get in the habit of setting better, clearly-defined financial goals.
2. Live On A Budget
Budgeting is one of the most important wealth-building habits you can adopt, because it is your daily and monthly plan for achieving your financial goals. It is also your guide for when it comes to making sound financial decisions.
I can personally attest to the power of budgeting, because the day my wife and I decided to get on a budget, we were in $34K of debt, with a net worth of somewhere around -$25,000. (Yeah, I don’t love telling this part of the story, but it’s the truth.) On a better note, after living on a very strict budget over the next 12 months, we got completely out of debt and increased our net worth by almost $75K.
Now, I know that isn’t what you would consider ‘wealthy’, but if you take what we were able to do over the course of a year, and extrapolate it over the course of 10, 20, or 30 years, it turns into some serious wealth. And seriously, it all boils down to sitting down with a budget every day, tracking your expenses, and checking-in and refocusing on your financial goals.
That’s why living on a budget is one wealth-building habit you need to master.