For those with big dreams of growing their business–or net worth–this year.
Building wealth, or a better financial future, doesn’t happen overnight. (We figure you already knew that.) However, experts would say it’s not a particularly linear process either. Financial success doesn’t move from Point A to Point B. Buuuuuuuuut it’s still surprisingly simple to achieve. It just takes discipline and practice. *(Whomp whomp.)*
For that reason, we’ve put together this list so you can start practicing the 7 habits of financially successful people. (Along with some links from said successful people.) Put in the work and you could see your net worth transform this year.
The 7 Habits of Financially Successful People
Avoid High-Interest Debt
Unsecured credit card debt and high-interest car payments are not your friends. Here’s why:
Leaving your interest unpaid allows it to capitalize and increase your credit balance over time.
According to Equifax, “if your balance is growing and you can’t afford to make your payments, your credit score may suffer.”
That’s because payment history is one of the major contributing factors to your credit score. Thus, a high interest rate demands more money from you–whether you’re making monthly payments or playing catchup.
AND if it’s attached to a credit card that you’re actively using, that balance can skyrocket quickly.
Pay Off and Keep Your Vehicle
Regular lease or loan payments on a vehicle are often one of your highest monthly expenses after rent or a mortgage.
Plus, they tend to have high interest rates attached–which, as just discussed, can have a negative effect on your credit health.
After it’s paid off, however, that amount becomes money in your pocket. (Or better yet, your savings account.)
By resisting the urge to trade in your fully owned car for the latest and greatest model (which will depreciate in value the most during its first year of life), you come out ahead.
If you truly need to replace your vehicle, the best bargain is actually purchasing a 3-5 year old model that’s been pre-owned or previously leased. That way you’re getting a vehicle with low mileage WELL BEFORE it’s in need of major maintenance (depending on who owned it last).
Fun fact: according to Dave Ramsey, author of the The Total Money Makeover, the top 5 car brands owned by millionaires are Toyota, Honda, Ford, Lexus, and Subaru.
Set Aside Emergency Funds
Instead of depending on a credit card that you’ll have to pay back later, set aside $50-$100 dollars of each paycheck into a savings account. (More, if you can afford it.) You can usually find one with a decent interest rate that will actually pay you to save money–versus a credit card which charges you interest for using it.
This habit helps you avoid going further into debt for unforeseen expenses. And having the funds already saved means you can immediately pay for new tires or an urgent prescription instead of putting it off or (worse) skipping something else important like groceries.
If you’re looking for hard numbers, Rachel Cruze recommends keeping $1k liquid in cash or a specific bank account with debit access at all times. After that, you should save 3-6 months’ worth of expenses in the case of a job loss or health crisis. Then you have a safety net to recover in without going further into debt.
Make an Investment Plan
Even the smallest amounts add up over time. That’s because growing your net worth is a long-game won by investing early and setting yourself up for success 5, 10, even 20 years down the road.
So where do you start? In a chair, sitting down with a financial advisor. She or he will help you identify what your goals are and balance your portfolio so it provides the best return on your investment.
Contrary to popular belief, no one has ever gotten rich quick on stocks and stayed rich. However, everyone who’s started with an investment plan and revisited it continues to grow their wealth.
Take Advantage of Work Benefits
Not every job has these, but if your position comes with benefits like vision or dental insurance, PTO, and a 401k, it makes sense to actually use them.
Book the vacation. Get the bloodwork done. Order new glasses. Get your teeth cleaned. Start saving for retirement. Companies that make the commitment to offer their employees benefits have already weighed the pros and cons. Mostly likely they were able to get a package deal for all their staff and are thus paying a flat rate.
Regardless, you won’t save your company any money by refusing to cash in. And you might be doing yourself a disservice by ignoring these health and investment resources. So if they’re offered, it makes sense to leverage them.
Don’t Live Beyond Your Means to Keep up with the Neighbors
In The Millionaire Next Door, authors Thomas J. Stanley and William D. Danko point out that rich appearances can be deceiving. Many folks in the U.S. who own expensive cars and homes, throw luxurious parties, give elaborate gifts, and wear designer clothes are quickly broke. Their income may be large, but spending beyond their means leaves them living paycheck to paycheck along with the majority of Americans.
In this situation, feeling left out might be a good thing. The genuinely affluent–those who haven’t inherited their wealth–do the opposite, buying their jeans at Walmart and their cars pre-owned. In short, the fastest way to increase your net worth is to refrain from unnecessary spending. The money you keep can become emergency savings or part of your investment portfolio.
Look for Passive Income Opportunities
Diversifying your income is a smart move. It means that if something should happen to your job–and your emergency fund comes into play–you can keep replenishing that fund until you sort out your next thing.
Maybe you own a nice boat, but most days of the summer you can’t really get out on the lake. So you rent it out to friends and family, with a signed waiver and an update to your insurance policy. While you’re taking care of other projects or relationships, your boat is making you money that will recoup the cost of gas, maintenance, and the insurance payment. Now you have a toy that’s paying for itself instead of being a drain on your income.
📌Save this page for the times when you need a little extra financial inspiration! And for more business bookkeeping advice, check out our other blog posts.
📚 Here’s a short list of insightful books we’ve been reading.