One of the great things about living in a capitalistic society is that anyone is free to go out, pursue their dreams and do as well for themselves financially as they can.
There’s no shame in making a lot of money. In fact, many people see it in their future. According to a GOBankingRates survey that polled more than 500 Americans on the various aspects of what it means to be rich in America, one-quarter of respondents said they’re “very confident” that they’ll be rich one day.
An inevitable follow-up question didn’t align so much. When asked about these steps being taken to achieve their estimation of wealth, 26 percent of people said they have not taken any steps to make it happen.
Whether you want to be rich, wealthy, or both, here are four financial habits that won’t steer you wrong.
Do you need two cars? A house with a couple rooms you don’t have a need for? What about another drink? Or dessert? Perhaps showering everyone in your life with gifts when you could really just express how you feel and spend quality time with them.
From gurus like Dave Ramsey and Suze Orman to financial entrepreneurs such as Andrew Housser, practicing moderation, spending discipline, asking: “Can I afford It?”— leads to long-term economic prosperity. It’s also fantastic for our mental health since a lot of the time when we over-consume, we’re doing it to fill a void or distract ourselves from some perceived inadequacy in our life.
When we consume moderately, we’re reinforcing that we’re satisfied with what we have; that we don’t need more to be happy. It’s a good way to go, considering the idea of rich is relative to what one is earning, anyway. Aside from bypassing the constant urges for more, a lifestyle of moderation reduces impulse buys, unused subscriptions and a host of other personal finance inefficiencies.
Invest Early and Often
It’s always a good idea to invest, but especially so when young. By far the best investing option is an employer-sponsored 401(k) plan, which allows contributions of up to 18,000 per year, in addition to the amount an employer will match.
As Investopedia notes, good 401(k) matches range from 50 cents on the dollar all the way up to a dollar-per-dollar match. However, a higher match doesn’t necessarily mean more money, as many employers cap contributions at a lower percentage of an employee’s salary. If you don’t have that luxury, a traditional IRA (tax-deferred contributions) or Roth IRA (tax-exempt contributions) will allow you to sock away up to $5,500 per year toward retirement.
In any case, you should be investing in the stock market, for both your retirement and overall growth in net worth. When you start early, the effects of consistent investing are life-changing. Consider these two scenarios via WalletHacks:
- Early Ellie diligently invests $100 a month for ten years. She stops contributing when she turns 30 but leaves the money in the market for the next thirty years until she’s 60.
- Late Larry waits ten years before he starts investing $100 a month into the stock market for the next thirty years until he is also 60.
While neither of these scenarios makes for ideal investing courses, who do you think ends up with more money? Though Ellie has contributed $12,000 and Larry $36,000 — Ellie ends up with nearly $20,000 more in retirement ($141,303.76 to $122,708.75). In short, compound interest for the win.
Mortgages are an exception, though not always a great one with the housing market’s risk over the last decade and a half. Aside from a place to live though, you should aim to live free of owing money to institutions. Pay your credit card bill off each month. Otherwise, you’re costing yourself 15–20 percent in interest and hurting your credit score. Thinking about getting a car? Save up and shop around for a reliable used car that you can pay for in full instead opting for a new vehicle, long loan and immediate depreciation. If you have student loans, explore any deferment options available. Know the jobs and careers that offer student loan forgiveness. If you have multiple student loan balances, explore consolidation options that simplify your payments and offer a lower interest rate.
Have a Cushion
One-third of Americans don’t have enough savings to cover a $1,000 emergency. With life only getting more expensive, operating without a financial buffer is akin to rolling the dice. What happens if you get sick, you lose your job, your car breaks down, or some other circumstance strikes hold on your cash flow?
While you should be investing more money than you’re saving, constructing a healthy financial portfolio requires both. Aim to save six months of living expenses (or however long you forecast your job search taking). With high-yield savings accounts offering interest rates over two percent, letting emergency funds slowly grow risk-free will provide a lot of peace of mind. Anything beyond your target living expenses is better off going to 401(k), retirement funds, and other investing means.
There’s no shortage of ways and habits we can adopt that will change our long-term economic fortunes. But if you want to keep things simple and ensure you’re on a prosperous financial track, live moderately, invest early and often, don’t carry debt, and maintain a savings cushion to weather hard times.