Do you know what is common between successful and wealthy people around the world? It is that they have few common habits by which you can identify whether they will make it or break it. Especially now, during the covid crisis, knowing how many people turned millionaires, have you ever wondered, “What are the financial habits of millionaires?”. “What habits sets them apart from the rest of the crowd?”. We at Your Rich Freedom can assure you that the financial habits of the wealthy are not rocket science for sure. In fact, these are simple habits, which if you choose to build, can do wonders to you achieving financial freedom and living the dream life (escaping the 9 to 5 rat race). And yes, It is possible to build these positive financial habits. Let us dive right into the Top 5 Best Financial Habits of Wealthy People
1. They live within their means.
One of the Top 5 Best Financial Habits of Wealthy People is that they live within their income and do not buy what they don’t need. Now when I say this, you must wonder, I must define the term “wealthy”. Wealthy in short means, they are financially self sufficient. That is, even if they stop working, it will not impact their existing lifestyle. They, in short, are the people who have achieved the financial freedom, the ones who have made it.
With an increase in their income, they avoid inflating their lifestyles. They think thrice before spending their money on goods that do not provide additional value to their life. All increase in their income is saved and reinvested into assets that generate passive income.
As per research, you would find that these habits are commonly seen among them. They Eat less junk food, cook healthy food, track calories, exercise at least 3 times per week, etc. Infact, most of them are just as conscious of their personal habits as they are of their financial ones.
2. They ensure they are financially literate.
Financial literacy is something that is not spoken to in schools. At least, in my case, I learned more about it at a late stage in life. Luckily, It is not impossible to accumulate this knowledge. You have so many resources out there these days and all you have to do is take the first step in learning. The fact that you are on this blog and are trying to understand these financial habits is a sign you are heading in the right direction.
We cannot expect to keep wealth if we don’t build a financial discipline on our spending habits. A personal budget can be a great tool that can help you build this financial discipline. Have you used one yet? A personal budget is a topic for another blog post altogether. Do you want us to write more about it? We would love to know in the comments.
3. They Budget, Track, and Review their spending.
I am not saying you have to go to the depths of frugality. All I am saying is that you can plan your expenses, track your actual expenditure and then, review the differences between both. You may not believe it, just by following this exercise, inefficient spending habits that you were not aware of can come to light.
When I take on clients for financial planning, one of the things that I do is give them a financial planning template and ask them to use it as much as possible. When we sit for reviewing the template, most of them are surprised when they identify their unproductive expenditures, some of them either spend way too much on restaurants or spend too much on shopping which is otherwise not required. It is the small things that add up to bigger amounts.
Keeping a small provision for unplanned unexpected expenses can help you stay within your budget and at the same time counters that it is not feasible to plan all expenses.
4. They consistently Save.
There are many ups and downs in the economy. We never know when a crisis can come. The best example is the covid which has impacted the economy drastically. In many industries, many have lost their jobs and this has impacted their living. Those who had saved for their emergency funds, or just saved in general, at least had a safety blanket.
I am trying to say, have an emergency fund, you never know when it may be of use. It is always a good idea to have 6 months of expenses saved as emergency funds. It is better to stay prepared than be sorry. Once your emergency fund is done, the next step is to save to invest.
5. They consistently Invest.
After saving, the next important thing is to invest the money into high-yield assets that generate passive income over time. the goal of financial freedom is to generate enough passive income over the month to cover the monthly living expenses. At this point, we can call ourselves, self-sufficient.
The investment you decide to make depends on the risk you are willing to take. If we break the age category into young (18-34), middle-aged(35-54), and older (55+), the younger can take more risks as they have more time to recover the lost money if the risk becomes a reality. The older are less likely to take the risk as they have no time to recover any loss of their capital. In the event of the loss, they will have a harder time recovering, considering the age, time, and capacity. This is a topic for a whole another blog article altogether.
There are many more habits that we did not include in the Top 5 Best Financial Habits of Wealthy People, as they become a subset of the above 5. We found that these 5 are the most basic yet important. Did we miss out on any important habits? What are some financial habits that you think are important in achieving financial freedom? Do let us know in the comments. We all would love to know!