Rich Habits Word of the Day
Fortuity – Risk, uncertainty. Tom understood the fortuity of investing and limited his investment to 25% of his annual savings.
Rich Habits Fact of the Day
I loved the book The Frugal Millionaires: 70 millionaires anonymously share their ideas about money to help each other and you and thought I’d share a bit of it with you. The author starts the book by listing six simple concepts that most of the 70 frugal millionaires in the book have in common. The list:
1. Delayed gratification is easy for them.
2. Resourcefulness in getting what they want is a key to their success.
3. They make living way below their means painless.
4. They don’t like wasting anything (especially money.)
5. Their sense of “self-entitlement” is highly minimized.
6. Spending is OK with them depending on what they are buying.
Rich Habits Lesson of the Day
There are three ways to become financially successful in life:
- Live Below Your Means (80:20 Rule) or
- Expand Your Means or
- Both 1 & 2
Believe it or not, most of the wealthy people in my five year study did not make a lot of money. But they did save a lot of money. They were fortunate. They learned the 80:20 Rule from their parents early in life and it became a habit. The 80:20 Rule requires that you make a habit of saving 20% of your net pay and learning to live off the remaining 80%. You pay yourself first by automatically setting aside 20% of your net pay before you pay one bill. This forces you to live off of the 80% that’s left. Here are some budgeting, spending and savings guidelines to help you accumulate wealth:
- Don’t spend more than 25% of your monthly net pay on housing. It doesn’t matter if you own or rent. Stick to this 25% rule.
- Don’t spend more than 15% of your net monthly pay on food.
- Don’t spend more than 10% of your monthly net pay on entertainment. This includes bars, movies, restaurants etc.
- Don’t spend more than 5% of your monthly net pay on auto loans and never lease. Leasing is something I call a Poverty Habit. Buy your cars and take good care of them.
- Don’t spend more than 5% of your net annual pay on vacations.
- Never gamble. If you’re going to gamble on the lottery, it comes out of your entertainment budget.
- Stay away from accumulating credit card debt. If you are doing this it means you are living beyond your means and you need to cut back on something.
- Always invest your savings prudently. Never gamble your savings on get rich quick schemes. There’s no such thing. The power of compounding can grow your savings and make you wealthy. Saving just $250 a month over 40 years will produce $500,362 at a 5% return. Savings and investment are two completely different things. You should never lose money on your savings. Investments represent a portion of your savings you are putting at risk. When you invest you accept the risk that you could lose some or all of that investment.
- Max out your contributions to the company retirement plan. If the company matches your contributions, great. That’s free money. Always take free money when you can get it.
- Know what you spend every month. Create a monthly budget and track what you spend. I have a budget template I’d be happy to share with you readers.