Your money habits can make you rich or put you in the poor house. According to a recent study by Brown University, in which nearly 50,000 families were surveyed, most of the habits we pick up in life come from our parents (Brown Study). This includes money habits. If your parents had bad money habits it is likely those habits rubbed off on you. But in order to change bad money habits you need to first become aware of them. Below are some destructive money habits that I uncovered in my five year Rich Habits study that will put you in the poor house unless you eliminate them:
- Gambling Habits – Gambling is not a sound plan to lift you out of poverty. Gambling relies on random luck. The odds of winning Powerball are 1 in 175 million. That’s basically zero. Seventy-seven percent of the poor admitted to playing the lottery regularly vs. 6% of the rich. But it’s not just the lottery they gamble their money on….. 52% of the poor admit that they gamble on sports at least once a week vs. 16% of the wealthy.
- Time Wasting Habits – Time is money. The rich understand this. Sixty-five percent of the rich created at least three streams of income during their lives. Conversely, the poor all relied on one stream of income. They didn’t invest their time wisely in building their careers or building a side business. In my study, I uncovered many time wasters the poor engaged in that ultimately cost them money: Seventy-seven percent of the poor admitted to watching more than one hour of TV each day and their preference? Reality TV wins hands down. Seventy-eight percent of the poor watch reality TV shows. The rich, on the other hand, are not big on TV. Sixty-seven percent watch less than an hour each day and it’s not reality TV that they tune in to. Only 6% watch reality TV. Another time waster is the Internet. Seventy-four percent of the poor in my study spent more than an hour each day on the Internet. These days that means Facebook, Twitter, Instagram, Snapchat or YouTube. Conversely, 63% of the rich spent less than an hour each day on the Internet. This freed up more time to read for self-education. While many of the poor in my study said they read regularly, 79% admitted that they read strictly for entertainment. Only 11% of the rich said they read for entertainment. Instead, they focused their reading on self-education: biographies of successful individuals, career-related reading, self-help, history and money matters. When you’re wasting your time watching TV, on social media or reading for entertainment it leaves little time to do productive things like reading to learn, building relationships with other success-minded individuals via networking or volunteering or building a side business. Time does not discriminate. Everyone gets twenty four hours, rich or poor. The rich simply choose to spend their time differently, doing things that are productive.
- Bad Spending Habits – The rich in my study made a habit of tracking their spending in the early days of building their wealth. It’s easy to lose sight of where your money is going. If you don’t have a lot of money you need to get into the habit of tracking every penny. The poor in my study didn’t. I uncovered certain poor spending habits that held the poor back in life: Ninety-three percent admitted that they did not budget their spending. Sixty-six percent admitted that they were not frugal with their money. They had a bad habit of making spontaneous purchases with their money. Oftentimes, this required them to use credit cards. Eighty-eight percent of the poor in my study had over $5,000 in revolving credit card debt. Sixty-nine percent used those credit cards to purchase big ticket items. And 77% had multiple credit cards. Conversely, 92% of the rich relied on one and only one credit card. Eighty-eight percent of the poor never shopped at a goodwill store in their lives. Many goodwill stores sell high quality clothing. The clothes may require some minor tailoring but, otherwise, you’re getting real value at a steep discount. Sixty-eight percent of the poor said they don’t use coupons. Why would you pay more for food than you have to? Every dollar you save is one less dollar you have to earn. Sixty-one percent of the poor did not own their homes, they rented them, while 100% of the rich owned their home. When you don’t own you home, you are unable to build home equity, which comes in handy when you retire or to help your kids with college costs.
- Poor Savings Habits – Only 5% of the poor in my study saved 10% of their income. None saved 20% of their income. Conversely, 94% of the rich in my study saved 20% or more of their income. Many of the millionaires in my study started out poor and did not have large incomes during their lives, so this was a habit they adopted while they were still poor. Fifty-one percent were small business owners who watched what they spent in order to enable them to save money. They then invested their savings, as well as the investment income generated by their savings. After many years, their savings and investments compounded, eventually turning them into self-made millionaires. It wasn’t easy but they did it. You can too! You just need a plan. You need to bite the bullet and save 10% or more of your income and then invest your savings wisely.
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.