Here are some of the money habits of self-made millionaires.
Self-made millionaires are those who have amassed significant amounts of wealth without the aid of a sizeable inheritance or trust fund, despite the fact that everyone starts out with a different set of advantages and disadvantages.
The wealth of self-made people is amassed gradually over time, beginning with the acquisition of fundamental financial skills like budgeting, then progressing to saving and investing.
No matter your starting financial situation, anyone can benefit from learning from the money habits of the newly wealthy, as the financial planners who work with self-made millionaires are aware.
Table of Contents
13 Money Habits Of Self-Made Millionaires
1. Avoid Getting into Debt
While avoiding debt may seem obvious, it’s a habit that can improve your financial situation as a whole. Clients make sure to reduce and get rid of all debt, excluding the mortgages on their house.
Paying interest on consumer credit, including credit cards and even car loans, is a waste of money if you want to accumulate wealth.
Prioritize paying off these balances in full each month and on time to maintain a high credit score because most credit cards charge exorbitant interest rates whenever you carry a balance.
Avoid using store credit cards in general and only charge what you can afford to pay back. They are notorious for their low credit limits, high-interest rates, and restricted usability.
2. Buy a Car and Keep It for the Long Term
Most of the time, the moment you drive a car off the lot, its value begins to decline.
Self-made millionaires typically opt to purchase any new vehicle rather than lease it with the intention of keeping it for a while. They can save money between car purchases by keeping their vehicles for an extended period of time instead of making monthly payments.
If you must finance the vehicle, pay it off as quickly as you can and make plans to keep the vehicle for a very long time after the loan is repaid.
3. Set Money as Emergency Funds
It helps greatly if you have a sizeable cash reserve that you can use in an emergency.
A rainy-day fund that is readily accessible for withdrawals can help you cover unforeseen expenses like an urgent car repair or medical bills.
By doing this, you can avoid using a personal loan or a credit card with a high interest rate to pay for the expense.
The majority of self-made millionaires have six to nine months’ worth of expenses saved up. As a general rule, financial experts advise saving three to six months’ worth of living expenses, but you should do whatever works best for your cash flow. And remember that every little bit helps. One of the initial steps in laying a strong financial foundation is to take this action.
4. Invest Your Money
Create investment plans after amassing an emergency fund, whether they be for stocks, bonds, or exchange-traded funds (ETFs).
Set up an automatic transfer of funds from your checking account to an investment account on a monthly or bimonthly basis. You can learn to live off the money you have available and stop having to remember to manually invest this way.
The majority of millionaires do not miss having that money in their “cash flow,” and they can use their invested savings to pay for future cars, trips, or other short- or long-term objectives without taking on more debt.
As a general rule, you should save at least 20% of your monthly income. This 20% is allocated to your retirement, investments, emergency fund, and savings plans.
Gaining the ability to live without that 20% of your income is a good place to start for both your savings and your investments. How much you withhold from your paycheck for investing will greatly depend on your income and investment objectives.
Make sure you understand how much risk you can tolerate and when you will need the money before making an investment.
If you are saving for retirement in your 20s or 30s, you can typically accept a little bit more risk in exchange for aggressive yields because, if you intend to retire in your early 60s, you won’t need your money for several decades.
The investment time frame for retirees in their 40s or 50s is much shorter. As a result, they are typically less willing to take on risk in order to better protect their financial investments.
5. Make the Most of the Opportunities Given by Your Employer
The benefit programs offered by your employer are worth carefully reviewing. Businesses offer a variety of savings and investment options, in addition to retirement plans, to help you save money and grow your money.
You might find it beneficial to take advantage of some of the benefits listed below, just like Daugs’ clients do:
- Employer retirement match: If you can afford it, make sure your contributions are sufficient to match any employer contributions. The match is effectively ‘free’ money for you.
- Employer life or disability insurance: When compared to purchasing these insurance policies individually, your employer’s group plans can offer significant savings.
- Employer Health Savings Account (HSA): Some employers will match your contributions up to a certain amount if you qualify for an HSA. Your contributions are tax-deductible.
- Employer legal services: Check to see if your employer’s plan includes legal services. If you ever need estate planning documents prepared, such as wills or trusts, using the legal services provided by your benefits plan can save you money on attorney fees.
- Employee Stock Purchase Plans (ESPP): If your employer offers an employee stock purchase plan (ESPP), you can typically contribute up to a specific percentage of your salary to the program, which then entitles you to a discounted price on company stock. This can be another inexpensive way to invest to keep increasing your net worth if you have confidence in your business and its stock.
6. Don’t Try to Keep Up with the Joneses
Trying to keep up with “the Joneses” is a common way for people to get into debt. But living beyond your means repeatedly catches up with you.
When accumulating wealth, resist the desire to own the latest and greatest gadgets. These days, so much money is wasted on constant “upgrades,” which can cost you both money and lost opportunity.
It’s natural to want to compare your life to others’, but take another look at your lifestyle and budget, focusing on what’s most important for your own personal goals. These are the wants and needs that truly matter to your bottom line and happiness.
7. Make Use of Tax Deductions
Try to reduce the taxes they pay whenever you can. This includes looking for ways to reduce taxes on everything from investments in retirement plans to mortgage interest, charitable giving, college funding, and health savings accounts.
Make sure you are taking part in the plans and programs that may provide you with a variety of advantages. In this case, speaking with a financial and tax expert is beneficial.
8. Look for Additional Sources of Income
The average person is unlikely to own multiple properties, but there are other rental opportunities that can provide additional passive income with minimal effort on your part. You can try to rent out a room in your house or apartment, or rent out your car while you work.
9. Begin Early College Savings for Your Children
You can start saving for your children’s college education early with the help of college savings plans, like a 529 plan, to ease their financial burden in the future.
However, the long-term advantages don’t end there. When you take money out of these plans to pay for college, you can do so without paying taxes.
You can save a large sum of money in future cash flow and tax savings by starting early. Starting out doesn’t cost much, but if you have the time, the power of compound returns can really pay off for you.
10. Set Savings Goals Early in Life
Ninety-four percent of self-made millionaires who built their wealth through saving did so by setting aside at least 20% of their net income.
They started doing this early in their professional careers, long before they amassed their millions.
Start saving from your first paycheck, whether it’s 10%, 5%, or even just 1%. The key is to establish and maintain a savings goal.
Thus, the savings habit is formed. Saving 20% or more of your net pay and wisely investing that money is the ultimate objective if you want to become a self-made millionaire.
Your savings and investments will increase over time thanks to the power of compounding.
11. Avoid Spending for Wants
The Census Bureau estimates that there are another 30 million people who make more money than they need but are still just one paycheck away from living in poverty.
These people practice a behavior known as want spending.
Want Spenders spend more on their wants than they earn.
Want Spenders give in to instant gratification and forgo saving in order to purchase the things they desire right away, such as 60-inch TVs, luxurious vacations, pricey cars, larger homes, and jewelry.
Want Spenders frequently lose a portion of their income gambling. At bars and restaurants, Want Spenders overspend.
Debt is incurred by Want Spenders in order to maintain their standard of living.
Spenders who want more make themselves poor. Scale of Need vs. Want
They have a lack of financial discipline.They have been brainwashed into making unnecessary purchases by advertisers and a consumerist culture.
When Want Spenders reach old age and are no longer able to work, they spend the rest of their lives in poverty.
They start to rely on their friends, family, the government, and other people’s generosity.
12. Avoid Lifestyle Creep
Lifestyle creep is defined as raising your standard of living to correspond with your rising income.
The Rich Habit is to put off spending money today and instead put it into investments and savings accounts that increase in value and provide you with money now and in the future to support your standard of living.
When something unexpected happens, like a job loss, you are then forced to sell your belongings. If the items you bought lost value, you would receive pennies on the dollar.
“Same house, same spouse, same car.” These words contain a great deal of wisdom.
They are saying to maintain your standard of living regardless of any good fortune that comes your way in life. Don’t buy things you really don’t need in order to supersize your life.
Embrace the Rich Habit of Delayed Gratification by leading a modest lifestyle and holding off on your desires until you have something to fall back on.
13. Seek Financial Advice.
Last but not least, develop the practice of keeping up with financial news. Millionaires understand their earnings, their possessions, and the costs associated with their investments on a basic level.
Saving for the future and making investments can be intimidating and confusing for many people. Fortunately, there are many free online tools available to assist you.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 735.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.