It’s all too easy to get sucked into thinking that we can shortcut the road to wealth, by way of things such as winning the lottery, setting up the next dot-com company, or finding the next great investment. Considering that 80% of the wealth in Canada is in the hands of 20% of the people, what are those 20% doing that we can all learn from? The simple answer is that the wealthy have learned to develop similar habits that they use to accumulate this wealth.
Wealth is not earned by accident and little real wealth is inherited. 80% of the wealthy are first generation having built their wealth in a series of steps.
They have a regular and disciplined saving process: They start by systematic deposits into a saving plan where money either comes out of their bank or is deducted from their paycheque. They do this before paying other bills or deductions, a process called “Paying yourself first” and ideally with 10% to 20% of their monthly net income.
They live frugally: If you read the book “The Millionaire Next Door” it provides an insight to what wealthy people look like. These people don’t drive BMWs or Mercedes, live in the biggest house, or wear designer clothes. They typically live in a modest house, drive a nice but older well maintained car and dress in an unassuming fashion.
They track their spending: Wealthy people not only live below their means, but also know where every cent of income is spent. On average 2/3rds know exactly where they spend their money. So if you wish to become wealthy, learn to develop the habit of tracking what you’re spending on a month to month basis. Developing a budget may be intimidating but is essential to build real wealth.
They are prudent in how they use debt: They strive to avoid, minimize or pay off any debt quickly. They believe it’s better to be earning interest than paying interest. Unfortunately we live in an age where many get into debt spending money they don’t have on things they don’t need!
They learn to maximize income: There is a correlation between wealth and income. Learn to train yourself to think outside the box on ways to increase your earnings such as getting a better education, learning new skills or starting up a new business.
Own assets that appreciate: Most wealthy people own their own home, because this helps them develop a wealth mindset. They also own equity in assets that appreciate such as businesses, stocks and real estate rather than ones that depreciate in value.
They get advice from professionals: Though they usually make the final decisions themselves, Wealthy Canadians realize they also need advice from professionals including accountants, lawyers and financial advisors. Learn that developing wealth involves seeking professional help, but still retaining control over one’s key decisions.
Building wealth is like planting a tree; the best time to start was 20 years ago. But starting now is better than not at all. Launch into a disciplined savings process. Learn to separate wants from needs, and find a trusted financial coach to kick-start the process.
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