To make a million dollars, one should… work hard and save even harder! Or maybe the first step to making a million bucks is to become a self-made millionaire. To become a self-made millionaire, one has to learn exactly what to do with their money, which isn’t as easy as it sounds.
In fact, there are several things millionaires do differently from the average person. In this article I will reveal those 10 things that many people don’t know about becoming a millionaire.
Spending Must Align With Goals
One of the keys to being rich is having goals, said Michael Kay, president of Financial Life Focus and author of “The Feel Rich Project.”
“(The rich) know what they care about,” he said. “Maybe it’s passing wealth to another generation, maybe it’s attaining a particular lifestyle. They are mindful of not wasting resources on things that have no value.”
According to Kay, the wealthy tend to spend money only on things they care about. The rest of us can learn from this by setting our own goals and then monitoring our spending to see if it aligns with those goals.
Learn More: Just How Rich Are Oprah, Bill Gates and Other Big Names?
Don’t Waste Money To Impress Others
Most rich people don’t spend their time and money trying to impress others, Kay said. “They are not in a race. They know they have made it, so their attention is not on what others think.” In fact, many wealthy individuals wouldn’t have become rich if they had spent their hard-earned money buying things to keep up with others, he added.
Authors Thomas Stanley and William Danko said much the same thing in their 1996 best-seller, “The Millionaire Next Door: The Surprising Secrets of America’s Wealthy,” writing that a couple of key secrets of the country’s richest people are living below their means and rejecting big-spending lifestyles.
Spending money to appear rich before you actually are rich is a surefire way to sabotage your wealth-building goals. So, forget about the Joneses and focus on what matters: accumulating wealth in the coming years.
Have Plenty of Liquidity
The rich make sure they have sufficient liquidity, or cash, to cover their short-term needs. They maintain an emergency fund so “they don’t have to disrupt their life for an unexpected occurrence,” Kay said.
The fact that rich people have money set aside for a rainy day isn’t solely a function of their wealth. They have cash reserves because they are disciplined enough to save.
Everyone should aim to build an emergency fund with enough cash to cover six to nine months worth of expenses, Kay said. However, you don’t have to set that much aside all at once. You just need to be working toward that goal with every paycheck. With that in mind, arrange to have a set amount automatically transferred from your checking account to savings each month.
“Like anything else, it’s a goal,” Kay said. “It only makes you a failure if you’re not working on it.”
Avoid Fees at All Costs
Fees can easily eat away at your wealth. Whether it’s a late fee on a credit payment, a foreign transaction fee from using a debit card abroad or an overdraft fee on your checking account, it’s important to avoid incurring unnecessary fees.
“Wealthy people understand every fee they pay means less money in their pockets,” said Taylor Schulte, CEO of Define Financial in San Diego.
Know What You’re Paying in Investment Fees
The rich also pay attention to investment fees — something many others overlook. For example, more than half of workers don’t know they’re paying fees on their workplace retirement savings accounts, according to a study by the National Association of Retirement Plan Participants.
Yet those fees can eat away at your returns, Schulte said. “The more you’re paying in mutual fund fees or transaction fees means less money in your pocket.”
Even small fees can have a big impact. If you invest $100,000 over 20 years and pay a 1% annual fee, your portfolio value will be about $30,000 less than if you had paid a 0.25% annual fee, according to the Securities and Exchange Commission’s Office of Investor Education and Advocacy.
Check your account statement to see what fees you’re paying. If they seem high, the SEC recommends asking whether the costs can be reduced. You also should shop around for accounts and investment firms with low fees, which can help you keep more of the money you worked hard to save.
Asset Location Is as Important as Asset Allocation
If you’ve read anything about investing and saving for retirement, you’ve likely encountered advice about asset allocation. That means having the right mix of investments, rather than putting all of your money in just one asset. However, the rich know that asset location is just as important as asset allocation, Schulte said.
In other words, the rich don’t keep all of their assets in one type of account, such as a tax-deferred retirement savings account. Instead, they spread it around. Wealthy people also have investments in brokerage accounts to limit the impact of taxes in retirement, Schulte said.
They Avoid Distractions
While it may seem like millionaires have more hours in their day because they’re able to accomplish so much, the actuality is that they have more time in their day because they don’t waste the time they have available to them.
That means avoiding common distractions that can take you away from the work that must get done.
To ensure you’re as productive as you can be each day, try avoiding these common distractions that detract from your work:
- Mindlessly scrolling through social media. Dedicating a few minutes per day to get caught up with your friends and family online is fine. Just don’t let yourself get caught up in mindless scrolling and using up valuable time throughout your day that you could be using to accomplish something productive.
- Checking your email each time you get a new message. Instead of feeling the urge to respond to emails as soon as they come in, schedule certain times throughout your day to check and respond to messages. Then, turn off your email notification so it won’t distract you while you work on other things.
- Watching television. Like scrolling through social media, vegging out in front of the TV for hours takes valuable time out of your day. While it’s fine to watch an hour of your favorite show each night, spending a big chunk of your day watching television isn’t the best use of your time.
- Playing games on your phone. While there are a few beneficial games that can help you improve your cognitive abilities, most games are more for entertainment than for providing you with educational value. And no matter what type of game you’re playing, spending more than a few minutes of your day on it isn’t a great idea to improve your productivity.
Practice Frugality
Do you think millionaires and billionaires got to be in the financial place they’re in because they were careless with their money?
While they may have the luxury of being able to spend what they want when they want now, most self-made millionaires got that way by living a frugal lifestyle.
Taking the time to be a little more frugal can not only help you save money in the long-run, it will also give you more money to invest into your future. Whether you want to start your own business or just save more for retirement, take a cue from millionaires and start pinching your pennies.
Avoid Debt
On the same lines of being frugal, most millionaires do whatever they can to avoid debt.
Think about it this way – would you rather be paying interest or earning it?
The more money you pay toward debt payments, the less money you have to invest in your future.
And one of the easiest ways to avoid debt is to pay cash for all your purchases. If you can’t afford something now, start saving until you have the money you need to make the purchase upfront.
Money mindset is everything
You need to have a positive money mindset when it comes to creating wealth. Everyone carries a money story and it’s your job to understand what yours is and if it’s holding you back. Reframing your story to a millionaire’s mindset is essential for success because rich people think differently. How to get rich can’t be a passing phase in your life; it takes work and commitment.
Millionaires still budget
Hard to believe, but it’s true. Even millionaires follow a budget. The biggest secret on how to get rich and stay rich is spending less than you bring in. There will always be wants that exceed budget limits, even for millionaires, because there is not an unlimited supply of money.
Conclusion
Math my probably doesn’t need to be said, but if it helps you to better understand this article, the average millionaire in the United States has a net worth of around $1.5 million dollars. No matter how you slice that number, that sounds like a lot of money! But have you ever wondered what the richest people in the world do to make their money?