At Wow, we work with ambitious people who have a strong desire to get wealthy and we are often asked the best way to do this…….The fact is, there is no single way to become rich – but there are a number of habits that people who are good at building wealth tend to have in common. These give them an almost super-natural ability to build wealth.
Michael Masterton, in his book Automatic Wealth, details the 8 habits of highly effective wealth builders – we will share with you what we think are his top 5:
Some people will create a budget and work out what all their expenses are each month and then try to save what is left over. They will pay the taxman, the mortgage company, the utility providers, many other companies and so on and so on out of their monthly pay but end up with little or nothing left over to pay themselves! All that work and you have not paid yourself anything! In some cases, if you spend more than you earn, you have less than when you started the month – despite a month of hard work!
Why not try this? Work out your net income and save a percentage of this as soon as it hits your account – not at the end of the month when nothing is left over. Pay yourself first, before you pay anyone else anything. This is what wealthy people do.
Think of yourself as a business. Your income is your revenue and your expenditure is your costs. Make sure you have a healthy profit left over at the end of the month. If you do not currently, you need to either increase revenue or cut costs!
How much do you think the typical American worth $6.8 million pays for their home? A survey amongst Masterton’s staff came back between $2-3 million. The real answer (from IRS records) was $545,000! Why is this? Because these wealthy people realise 2 things: i) the cost of your house determines the cost of your lifestyle – buy a big house and all your other expenses go up (bills, taxes, maintenance, school fees) – leaving you far less money to actually build your wealth and ii) spending on your home should not be about return on investment – find somewhere nice to live and be very happy. Then focus your investment decisions elsewhere, where you can be rational and not emotionally attached.
In Masterton’s book, he writes “The problem with making money in America is that every time you make an extra dollar, you spend two” – and this is the main reason why most people in the UK, as well as America, will never become rich. When people get a pay rise or see a jump in profits, the first thought is to consider how best to spend it – this will never, ever lead to riches.
One example of this is the boxer Mike Tyson. He earned over $400 million from his boxing career. Yet in 2004, this money-making machine was $38 million in debt. He had assets which only totalled $6 million, making him worth a negative $32 million. He was 160,000 times poorer than the average wage earner in Sierra Leone. The reason for this was his uncontrollable spending! $140,000 on two Bengal Tigers, $2 million on a bathtub and $230,000 on mobile phones were just a few of his spending habits.
It is not what you earn, but what you do with it that will ultimately determine your wealth.
According to Thomas Stanley, author of The Millionaire Next Door, the average millionaire is much more frugal than maybe you or I. He obtained most of his data from the IRS and found out the average millionaire:
This doesn’t mean they lead miserable lives – they don’t, because they can choose to do pretty much whatever they want, whenever they want. They simply have a saver’s mindset and feel differently about spending to other people. They also know that the very best things in life are actually free (like spending time with your family) and they have far more time to enjoy these things than those people who need to maintain their wild spending habits. How can you start to develop this saver’s mindset?
Successful wealth builders regularly count their money. They know what they are worth and where their money is. They want to make sure they keep as much of it as they can and give as little away in taxes as possible. They are in control and have a plan.
One idea we like at Wow is to create your own personal balance sheet and update this every month or every quarter. Doing this keeps you focused on increasing your wealth each and every month. It will affect your spending decisions and train your mind to start thinking like a wealth builder!
If you would like a copy of the Wow Personal Balance Sheet, e-mail us at email@example.com
Find out what a Wow accountant could do for you.