7 Ways to Develop Good Money Habits that Can Make You Rich

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Financial success takes a long time. In my Rich Habits Study it took the average self-made millionaire 32 years to become “rich”. When I began my study I wanted to know the answer to one question: why are some people rich and other people poor? Five years, and over 350 interviews later, I finished my research. It wasn’t an easy thing to do. I had grouped 144 questions into 20 categories, and asked over 350 millionaires and poor people these questions. It took me five years because this wasn’t just a survey I mailed out. Surveys have very limited value. I either met with these people or spoke with them over the phone. As a result, I was able to gather far more data. If you do the math, I asked 51,984 questions of the rich and the poor. That’s a lot of questions! But also, a lot of answers. One of the most valuable things I learned from this research is that there are really only two ways to become rich:

  1. Live Below Your Means (save more than you earn) or
  2. Expand Your Means (earn more than you spend).

For the vast majority who are unwilling to take the risks associated with Expanding Your Means, you are left with the only other remaining option – Live Below Your Means. I won’t bore you with what that means, as you no doubt get the concept. But I thought I’d highlight seven of the Good Money Habits I uncovered in my study that will set you up to become rich.

  1. Know Where Your Money is Going – Look at your bank statement and credit card statement every month. You’ll uncover expenses for things you were not even aware you were paying for, such as club memberships, subscriptions, recurring charges for products or services you don’t even use. Oftentimes these recurring charges are the byproduct of some “free” promotion you signed up for. The problem is those promotional periods end and when they do, that’s when the charges begin.
  2. Annual Expense Review – Many expenses change over time. Insurance costs, such as life insurance, can actually drop when the life expectancy tables are internally adjusted by your insurance company’s underwriting department. You’ll never know unless you reach out to your insurance agent to find out. Also review your health insurance to make sure you’re not inadvertently paying for dependents who left the nest, are on their own, and have coverage through their employer. Cable and Internet costs often change when certain channels are added or dropped. You may be paying for channels you were not even aware were part of your package. Calling your cable or Internet provider to secure the lowest fees available should be an annual process. Periodically shop cell phone plans. Increased competition in the cell phone industry is driving down monthly rates. Make sure you are not paying more than you have to.
  3. Avoid Spendthrift Friends – Most people were not taught the habit of living below their means by their parents. As a result, it is very likely that some of your friends are dragging you down with their reckless spending. A night out on the town can sometimes turn into an unexpected $300 night and vacations can turn into investments. Think long and hard about the affect your friends are having on your spending habits. If you hang out with spendthrifts, you could become one yourself. Our habits are influenced by those we associate with. The self-made millionaires in my study made a conscious effort to associate with like-minded individuals. Make sure you are associating with individuals who share your desire to live below their means.
  4. Use On-line Coupons – Online sites like Groupon, Living Social, Fab and many others offer discounts of 50% or more on restaurants, products and groceries. Thirty percent of the self-made millionaires in my study used coupons. Why pay more than you have to on groceries or other expenses?
  5. Keep Housing Costs Between 25% – 30% of Your Monthly Net Pay. Contrary to what you’ve been led to believe, most of the rich do not live in mcmansions. Sixty-four percent of the rich in my study lived in modest homes.
  6. Allocate Your Savings Using The Bucket System – Bucket #1 is your Retirement Savings Bucket. Bucket #2 is your Specific Expense Bucket (i.e. saving for a down payment on a home, wedding costs, birth of a child, etc.). Bucket #3 is your Unexpected Expense Bucket (i.e. home repairs, car repairs, medical costs, unemployment, etc.) and Bucket #4 is your Cyclical Expense Bucket (birthday gifts, holiday gifts, vacations, back to school, etc.).
  7. Establish Savings Goals Per Bucket – Earmark a certain percentage to set aside for each bucket. For example, if you save 20% of your net pay the allocation might look like this: 10% for Retirement Bucket, 4% for Specific Expense Bucket and 3% for both Unexpected Expense Budget and Cyclical Expense Bucket.
    Saving money is a process. Accumulating wealth is a process. It’s all one big process, this thing we call financial success. But if you don’t have a process or adopt good money habits you will never be able to save. It just won’t happen. When you develop good money habits you feel like you are finally in control of your life. It’s empowering.

Building wealth takes time. It doesn’t happen overnight. It took the average millionaire in my study thirty-two years to become rich. The younger you are, the more time you have to build wealth. That’s only possible if you eliminate destructive money habits and adopt sound money habits.

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Thomas C. Corley About Thomas C. Corley

Tom Corley is a bestselling author, speaker, and media contributor for Business Insider, CNBC and a few other national media outlets.

His Rich Habits research has been read, viewed or heard by over 50 million people in 25 countries around the world.

Besides being an author, Tom is also a CPA, CFP, and hold a master’s degree in taxation. As president of Cerefice and Company, CPAs, Tom heads one of the premier financial firms in New Jersey.
 
Phone Number: 732-382-3800 Ext. 103.
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