Becoming a millionaire is often at the top of most people’s financial goals. While the journey to having a 7-figure bank statement might seem like a pipe dream, it is simpler than you would imagine. The journey starts by having the right mindset and then studying how millionaires manage their finances.
If you want to join the 1%, also known as the well-healed or the haves, you need to reconsider your money habits. Even though the wealthy seem to have it all, they usually follow the best financial practices. Check out what they do differently.
1. Understand Their Net Worth
Your net worth follows a simple mathematical calculation that considers the sum value of assets (savings, possessions, and investments) minus their liabilities. Your net worth is your assets less what you owe. A person’s net worth fluctuates based on the value of their assets and the balances of their liabilities. Millionaires understand this phenomenon and work hard to increase their net worth by investing and minimizing their liabilities.
2.Have A Financial Plan
Millionaires understand something that most people don’t; the value of time. While most average earners are looking for quick ways to make cash, successful individuals have a well-laid out, low-risk financial plan. They focus on achieving an asymmetric risk-reward relationship. The concept to follow is that you will assume the least amount of risk with an average potential reward. Creating a plan on paper that has target returns and follows your tolerance for threats can have a massive impact on your finances. You can consult a financial planner or one of our asset experts for a personalized strategy based on your present financial standing.
Although this seems straightforward, it is among the top ways of becoming a millionaire. Many people don’t perceive investments as seriously as wealthy people do. When they receive money, they first set aside a portion for investing and then spend the rest. 6-figure earners usually do the opposite by spending on their needs and then trading the remainder. By prioritizing investments, millionaires have a better shot at growing the wealth they already have.
4.Take Time to Study and Plan for Investments
A millionaire is likely to spend a lot of time planning a financial move before implementing it. The strategies they follow are fueled by research because most spend more than 11 hours a month planning for investment and learning wealth management tactics. That is about two hours more than non-millionaires. Since millionaires are more literate in financial matters, they have a high tolerance for taking investment-related risks.
Some incomes generate monthly, annual, or quarterly revenues in the form of dividends. Although they might seem like extra paychecks, millionaires understand that rewards can help them create more income. Unless you are ready to retire and you are wealthy enough to the point that your principal amount can cater for all your living expenses, continue re-investing your dividends. Plugging back your earnings into the principal amount is known as your cost basis. It means that you will have more shares than you did previously and, in turn, help you to generate more income.
6.Cultivate Multiple Income Streams
The more income sources you have, the higher the chance of bringing vast sums of money. Consider the analogy of two fishers; one has one line cast while another has three. Logic has it that the angler with three lines is likely to bring in more fish than the other one. That is how wealth works too. Having several income sources means that you will let go of the middle-class mindset that you must do everything yourself, limiting your financial growth.
7.Pay Attention to All Ventures
Focusing on investments and finances pays off, as it is evident by what millionaires do. Understand what you are making, your spending habits, and where you keep your financial assets. You can make better decisions when you understand all these factors.
8.See Debt as Danger
It is not like millionaires are debt-free, but most of them strive to stay away from debt. Many of them do not see debt as a tool. Considering the net worth model explained earlier, reducing your debts means that you own more than you owe, so you are wealthier. When you don’t have to pay for your credit card debt every year, you have more money for investing in your financial goals. Consider repaying your debts so that you can live more freely.
9.Take Calculated Risks
While most 6-figure earners are content to stick to their lanes, millionaires strive to get the most out of theirs. To put it in another way, middle-class people are scared of risking too much, while millionaires aren’t shy about aiming for the best. To make it in life, you must overcome the fear of things with knowledge. Your journey to successful wealth management starts when you take the time to learn about potential investments and don’t be scared to fail.
10.Save A Lot of Their Income
Living an affordable life and being frugal enable millionaires to save. They know that having a steady income isn’t enough; that is why they struggle to keep what they earn. Putting some money aside means that you will have some capital to invest in the things you want.
11.Budget and Stick to It
Although the term “budget” has a negative connotation to some people, it is an excellent step towards having a seven-figure net worth. Unlike middle-income earners, millionaires do not associate budgeting with being broke or lacking. They pay attention to every dollar they make and don’t feed instant gratification. Preparing a budget before you receive your money is an excellent way of ensuring that your money goes into what you want.
12.Buy Appreciating Assets
Most investments that millionaires make seem dull at face value, but in the real sense, they aren’t. Many wealthy people drive simple cars and live in moderately-priced estates. Their actual lives are nothing like what we see in glossy magazines. Millionaires consider real estate investments lucrative, and they don’t shy away. Some of the financial benefits of spending money on a building or land are increasing housing value and tax advantages.
13. Minimize Taxes
Millionaires understand tax laws, and they use the system to their advantage. Not only do they make sound investment choices that consider tax implications, but they also channel their money into tax-free deferred funds like college 529 plans, 401(k) s, and IRAs. When you don’t pay huge tax bills, you have some spare money to cater for your extra investments. Investing in a taxable account is also tax efficient. By reducing your trading activity, you won’t incur large capital gains and consequently won’t make hefty taxable incomes.
14.Put Energy Towards Personal-Growth Activities
Millionaires don’t shy away from personal growth. They spend about six hours a week reading for pleasure and another six hours exercising. The average person spends two hours a day on these exercises. Part of financial success comes from investing in yourself because, without you, all the wealth you accumulate would amount to nothing.
Millionaires see money as a seed – where you sow where you will reap. They know that by practicing generosity, they receive more in return. Several millionaires and billionaires are philanthropic, and that is not a coincidence. Giving money to charitable courses that you believe in not only gives you a sense of fulfillment, but it gives you a reason to earn more.
16. Protect Assets
Millionaires don’t just work hard at building assets they know that protecting their net worth from frivolous lawsuits, liability and even accidents is important. A proper legal structure using LLCs, Corporations, and Trusts is key to protecting wealth. Talk with one of our Asset Protection & Wealth Creation Specialists today!