What are the best wealth building habits to master to increase your net worth and be on the path to success? Find out in this article!
Building wealth doesn’t necessarily mean turning oneself into a millionaire, nor is it something that only the currently wealthy can do. Whatever your aspirations may be, building wealth in your life is possible, and the key to it is a series of good habits and consistency.
Here you’ll find some of the best wealth building habits to master.
8 Wealth Building Habits that will change your life
Below we will introduce 8 positive habits that can help you start building wealth. When considering the opposite of these habits, we also discover the wealth-diminishing habits that prevent us from reaching our financial goals in life; as keen as you are in incorporating the good ones, remember to stay away from the others!
1. Create Realistic and Achievable Financial Goals
If you’re wondering how to create wealth from nothing, it begins with careful thinking and planning. You have to first understand your current financial situation; understand exactly how much you are making now, how much you are spending and on what. Once you understand that, you can start to make plans and generate ideas on how much you can save and in what timeframe.
It’s absolutely essential that these goals are realistic. Vague and lofty goals such as “becoming a billionaire before the age of 30” are not getting you anywhere. It’s best to try and work in real dollars and cents (or whatever your local currency is).
Let’s say you want to generate a net worth of $500,000 within 12 years. This isn’t impossible for a lot of people, but it requires that you set down real-dollar goals.
So, $500,000 within 12 years means $4,166 every month. That might be a bit of a stretch to do from month 1. How about instead you focus on getting out of any debt that you have within the first 6 months, and then investing $1,750 a month or so that will pull in annual returns of about 10 percent from years 2 to 12.
It may not work out exactly as you plan, but 12 years from now you’ll be much wealthier than you are now.
2. Set Money Aside First, then Budget
Once you have your goals and you can get into the mindset of long-term financial thinking, you are ready to start building up more short-term habits that will help you get there. The first of these is being able to set money aside first for savings and investment, and then creating your living budget.
Some people simply lump their money together and then try to invest with whatever they may have left at the end, which is typically little. This is a wealth-diminishing habit.
When you receive your salary or any portion of your income, you need to allocate a percentage of that total to your savings and/or investments first, and only then budget the rest for your living expenses.
To give a simple example, if you have $3,500 a month net income, and you plan to invest or save 20% of it, then $700 of your salary needs to be put aside immediately. You’ll then create a budget for $2,800. If you can do this every month, your savings and investment pot will grow continuously.
You should then extend this habit to any kind of income that you get. One of the best ways to build wealth is to develop alternative income sources besides your main salary. We’ll cover that in habit number 4 further below. The point here is that you should always be ready to allocate a percentage of your income to your savings or investment fund.
There may even be one revenue stream that you can allocate entirely to that fund; this would help you maintain the wealth-building fund in the event that your main source of income is cut or reduced, allowing you to channel your main income to living costs.
3. Steer Clear of Debt
In 9 cases out of 10, debt is the enemy of the wealth builder. Why only 9 times out of 10? Why won’t we say that debt is exclusively a bad thing? We’ll explain in a moment. The main types of debt you should certainly steer away from include:
- Credit card debt
- Car loan debt
- Medical debts
- Store card debt
- Payday loans
Among these, medical debt may look out of place to some because it can hit you without it being your fault. While this is true, you can take measures to minimize risk in your life by investing in some health insurance for yourself – or additional coverage if your workplace provides some.
The reason these kinds of debt are considered so negative is that they contribute nothing to your long-term finances. When you clear your debts you will gain no additional wealth or equity stake in anything. This is how they differ from more “positive” debt forms like:
- Business loan
- Student loans
- Home equity loans
These are positive forms of debt because they are “constructive” debt. All of them are investments to help you make more money down the line and/or gain a great equity stake in something more valuable. When you’re paying off credit card debt, you are clawing your way back up to zero.
When you pay off a mortgage, one month at a time, each month gets you an additional piece of a valuable asset, be it a house, an apartment or any other piece of real estate.
Even a student loan is positive because you are investing in skills and credentials that help you to access higher levels of income, which then ultimately help you pay for that student loan.
That’s not to say that there aren’t ways to turn a student loan into something negative. Getting yourself into $100,000 of debt for a major that typically returns no high-paying job is a good example of that.
In any event, you should steer clear of all negative forms of debt and work immediately on reducing and eliminating them. Once you’re clear of negative debt you can start work on generating wealth.
4. Work on Passive Income
Next we turn to how income builds wealth. Obviously, you’ll have your primary form of income which is likely a weekly or monthly paycheck from your regular job. That’s a start, and you can begin allocating money from that to your savings and investment efforts.
The trouble is that as long as you rely on your main source of income, you will be forever constrained by that amount. Meeting your financial goals means working consistently to boost that income.
One of the best ways to accumulate wealth is through passive income. Many streams of passive income start very small but can grow into significant and even life-changing amounts when you put the work into it.
So, what forms of passive income can you look into? Not all methods will work for you, but there are some that are almost too good to pass up at least trying.
The first form of passive income that you’ll want to start enjoying is interest from your investments. Putting money into mutual funds brings in interest every year.
We mentioned further above that your goal should be to work on getting money into funds that will offer up to 10 percent return per year from years 2 to 12 of your bigger plan. This is the most direct form of passive income that requires no additional effort from you other than putting the money in the right places.
Another form of passive income could be rent from a property you own. If you live in a property with a spare bedroom, you could even rent that room for an extra income. It’s not life changing at first, but it steadily builds up and is a nice guaranteed sum of cash each month that you can put aside.
Finally, there are some alternative passive income sources that will require an investment of time and effort to get off the ground, but once launched can become nearly self-sustaining. These include (but are not limited to):
- Create your own dropshipping store where you sell goods but others handle the packaging and shipping
- Selling digital products online like t-shirt designs
- Create video courses and sell them online
- Create an affiliate marketing business
- Sell your photos to stock photo hubs
With some heavy input at the beginning, these ideas quickly become side-businesses with many functions automated and needing very little of your attention.
5. Live Within Your Means
Next, we turn to a lifestyle habit, which is closely linked to point 3 about debt. If you find yourself constantly in debt, paying off credit cards, borrowing money from friends and family to pay off other people, then it’s a clear indication that you are not living within your means.
To live within your means is one of the most important steps to building wealth, and it means that you’ll live in such a way that you are not generating any debts for yourself. You take the money you have, pay all your expenses and even have money left over for savings and investments.
When no debt is accrued, that means you have successfully lived within your means for that month.
Some people attempt to start living within their means by first cutting themselves off from their debt-sources like credit cards. Closing down lines of credit is actually a counterproductive move.
The best thing you can do instead is to push yourself not to use credit cards for anything except emergencies or other sudden costs that you have no other choice but to pay off. Don’t cut up your cards, but instead put them in a different place if you’re afraid you’ll be tempted to use them, such as in a friend or family member’s home out of sight.
Keep your lines of credit open because they can be useful for building your credit score, which later comes in handy if and when you want to borrow money as a business loan or if you want to get a mortgage to buy a property.
The ideal behavior is to use credit cards for simple, everyday purchases that you can immediately pay back with money that you already have in your bank account. This builds credit but keeps you out of debt.
Finally, steer clear of vanity purchases and/or other unnecessary items that you don’t need, like a second car — or even a first car if you have no reason to own one — expensive vacations, dinners at fancy restaurants, and nights out drinking in bars and clubs.
We’re not saying don’t have any fun in life, but it all has to be done within the confines of your budget and financial plans.
One of the top rich people habits is investing. Where you can put your money to work should be constantly on your mind. By developing habits of checking the financial pages and blogs, and keeping your eyes, ears and mind open to new opportunities even for small investments, you become someone whose money is never idle.
You might also consider hiring a wealth manager or a wealth management firm to help advise you on things to invest in. You might think this is just another expense, but wealth managers are typically paid with a percentage of your earnings. You don’t have to pay them out of pocket. That being the case, they are incentivized to work hard for you.
Investing doesn’t have to mean high risk, either. The younger you begin your investment journey, the lower risk you can enjoy for the same kinds of returns in the long term.
If you’re already 50 and only just starting to look into investing and wealth management, then the only options that are open to you if you want to make any significant money by the time you’re 60-65 are those of much higher risk.
Alternatively, if you start when you’re 25, then you can invest smaller amounts in low-risk ventures and funds that will gather interest and value exponentially. By the time you’re 55, your low-risk profile can already be worth a great deal of money.
7. Long-Term Goals Are King
This habit is fairly simple, and that’s getting yourself to look at things in the longer-term rather than in the immediate term. Those who stay poor for life, or at least who won’t gain real wealth later in life, tend to always think short-term; that won’t get you too far!
To build wealth, you have to stick to the habit of thinking of earnings, savings and goals in the long term. It can’t matter to you that this month’s savings only contribute a tiny percentage to your ultimate goal.
If you think like that, then you’ll never build up the foundation of a financially stable future. You have to build up wealth brick by brick until it can later stand as a mighty and stalwart fortress. That takes discipline and long-term thinking.
8. Keep Learning
Finally, it’s no coincidence that one of the most recurring habits of wealthy people is reading and learning. They feed their minds and souls with knowledge and inspiration, which guides them to making good decisions, mental discipline, and a broader, more open mind in which those creative money-making thoughts can flourish.
Bill Gates reportedly reads 50 books a year, and all of them nonfiction titles. Warren Buffet apparently spends 80 percent of his day reading.
Elon Musk, too, supposedly learned everything he knows about rockets from reading books. It was his love of fantasy and science fiction books as a child that inspired him to want to leave a legacy to the world.
No one is saying you have to become as rich as any of these individuals (or read as much!) but clearly reading is a common factor among the successful. Feed your mind and go to bed each night having learned something new.
Adding these habits to your life, the chances of succeeding in your wealth-building endeavors will be hugely increased.
Saturday 30th of April 2022
Hola Fran. Simplemente para saludar. Soy un uruguayo que vive en Londres y te sigo en tu canal. Felicitaciones por todo lo que haces y compartes. Tengo un negocio de empanadas y estudio economia online en el Open University part-time a los 41 años. Me encantaria trabajar online, pero de momento no puedo, veremos en el futuro. La idea de un canal de youtube, siempre me gustó. En tal caso ya se donde adquirir conocimiento, será aquí. Saludos y si pasas por londres, las empanadas están invitadas.