You want to be rich? Live like the rich!

7 Habits of the RICH you must follow

(This is the first article ever posted on this website. It is as relevant today as the day I wrote it and I stand by every word written here. Please leave comments if you feel there is anything I left out)

I used to look at the wealthy and ask myself “Why not me?” So I decided to research what it is they do differently. What I found are the following behaviors that the rich do that help them stay rich. If you want to have a life free from the obligation towards your job, you need to follow these 7 habits of the rich now.

1. Change your Mindset – Not only do you deserve to live a financially independent life but you can and you will.
2. Take massive action now
3. Create specific goals with deadlines and hold yourself to them
4. Pay yourself first.
5. Spend less than you earn – stay out of debt
6. Save found money, unexpected windfalls and spare change
7. Invest and take advantage of compound interest

#1 Change your mindset

“The starting point of all achievement is desire”

Napoleon Hill – Think and Grow Rich

Perhaps the most important habit of not only the wealthy but successful people in general is the ability to change your mindset. In order to achieve it you must believe it. If you don’t feel you deserve something, you will never get it. If you don’t think its possible, then you wont achieve it. You have to want it so bad that you will find a way to make it happen. As Napoleon Hill stated his best selling book Think and Grow Rich, “weak desire brings weak results just as a small fire makes a small amount of heat.”

If you are stuck in the mindset that there is no way out or that you will never be able to save enough to quit working forever, then you will never make it to step 2. Most people at some point will feel hopelessly stuck. The majority of Americans say they are unsatisfied with their job so we distract ourselves by spending money we don’t have on things we don’t need. We also waste time with mindless entertainment that keeps us from ever learning the truth; that this is really not all that complicated.

You need to realize that nobody is responsible for you except you. Block out the negative external voices and strive to achieve better and proceed to #2…

#2 Take Massive Action NOW

You’re sick of your job, your life? You want to be rich? Good! Do something about it. NOW! Take action towards change immediately.

You want to be a millionaire? Go get a savings calculator and do some simple math to determine how much you need to save weekly, monthly, yearly for how long.

Here, I’ll help.

Suppose you are 25 years old and your life currently sucks. You want to be a millionaire at 65. How much do you need to save each week? The answer might shock you but it is a mere $100 per week every week for the next 40 years and you are a millionaire.

Simple math

Use this savings calculator.

$100 a week x 40 years at 7% interest =$1,049,941

I can already hear it, the same BS excuses I used to make. “But I don’t have $100 a week”

Ok, how about that $5 Grande Latte you drank this morning. $50 for the latest XBox game. $100 out drinking Friday night. $50 for a shitty steak at Outback. How much bottled water did you drink last year? How many paper towels do you go through in a week?

Cut Spending

Everybody… and I mean everybody can find somewhere they can cut spending. How much is the monthly payment on your Ford F150 that you don’t even need? What is the insurance payment on it? How much did you spend on netflix last month? On Demand? Cable? Whatever it is you have? I know you have some form of video entertainment you spend money on monthly. Most Americans have multiple streaming services.

I can go on and on. Until you say to yourself, I have had enough and decide to change, you will never change. That decision needs to be followed up by taking immediate massive action. Set up a direct deposit of 10 bucks a month into a savings account. Download the robinhood app and sign up today, even if you don’t fund it just yet.

For more on cutting spending check out my article 10 Insanely easy ways to cut spending and become a millionaire.

Do something.

I am a former smoker. Stupid, I know. I made the decision to quit a thousand times but it only happened after I took action. The action was to destroy the pack of cigarettes in my pocket and say out load to myself, “I am now a non-smoker”.

Your first action towards achieving financial freedom needs to be the decision to change your mindset, Do it now and move immediately to the next action.

# 3 Create specific goals with deadlines

“A goal is a dream with a deadline”

Napoleon Hill

What is your dream? Mine is to be financially independent to the point I can tell my job to go eat shit. Once I determined the specific dollar amount, I determined how long it would realistically take me to get there and what sacrifices I needed to make (a plan) and I had my deadline. In that moment, this dream of mine ceased being a dream and became a goal.

“I want to be rich” is a dream. A wish.

“I will save one million dollars within the next 15 years” is a goal.

Wishes are for magical genies to grant.

If you can find me one, I will gladly shut down my blog and retire to the island in the picture above. Until then lets stick with goal achievement.

Once you have your goal and deadline in mind, write it down and at the end of it write these words “and this is how I plan to achieve it”

My goal is to save one million dollars in the next 15 years and this is how I plan to achieve it. Now that’s a goal!

Next you need to create a plan of action for how you will reach that goal by the deadline you have set.

#4 Pay yourself first

This is one of the oldest rules of savings. But what does it really mean?

Paying yourself first means that when you receive your weekly paycheck, before you spend a single cent, before you buy food, pay rent, or pay any bills, you pay your savings account first.

I know it sounds impossible. After all you are late on the rent, 3 months behind on the cable bill and they just turned the water off. This is not up for debate. Paying yourself first is a habit you must form and stick to if you are to build the kind of wealth that will allow you to one day have the financial freedom to quit the rat race.

Tax yourself

I look at it this way, if the government were to increase your taxes another 10% what would you do? You would pay it and figure out how to survive on what they were magnanimous enough let you keep. So why not pay yourself that money. Automate it and you won’t even realize its happening and before you know it you will start to grow a nice little nest egg.

This can be a 401k, ROTH IRA, simple savings account, individual brokerage account, or any combination if you like. The important thing is that the money is being saved instead of spent and it is happening consistently at regular intervals.

This should be relatively easy. Remember, you have already changed your mindset and committed to taking action towards achieving your specific time sensitive goal.

#5 Spend less than you earn and stay out of debt

If I could give just one piece of advice to my children regarding their financial security it would be to spend less than they earn. It is a simple concept but it requires a great deal of discipline and self control.

Overspending is typically the result of our emotions. We feel the need to keep up with the Joneses and spend our hard earned money on the latest gadgets and newest cars just to impress people we likely done even like. It feels good to be able to spend $200 on a single meal at a fancy restaurant or buy the whole group shots at the bar on Friday night. I still do it myself from time to time. However, if you are to set yourself free financially, you will need to know when to curtail this behavior, have some self control and reap the rewards of frugality.

Check out my article on how to avoid lifestyle creep for help with spending less and staying out of debt

Spend Logically

At a certain point in my life, I stopped looking at the emotional reward of spending and began to look at it logically. How many hours would I need to spend at work in order to enjoy a Steak dinner from Peter Lugers? When you start to weigh your spending in terms of time instead of money, it changes the value you assign to the things you are spending the money on. In order to do this you must also be able to determine your wants from your needs

Now you may be saying to yourself, I don’t need to put that $200 in the bank. Well, you do if you are going to achieve your goal of financial freedom. Paying yourself first should be your absolute first need and you can only do this if you are committed to spending less than you earn.

The Bottom Line

The bottom line is, I don’t preach total elimination of wants or else you would be living a life of boredome and misery. However, if you are serious about attaining a level of wealth that will give you the freedom you deserve, you must make sure the juice is worth the squeeze. Use the wait a week approach. No impulse buys. If you still want it in a week, then buy it.

Your time is your money!

A friend of mine taught me this lesson a long time ago; When we were both working 25 hours a week for 10 bucks an hour. Every time he spent $10 he would say out loud, there’s another hour I need to work. Basically, every time he resisted the urge to spend $10, that was one work hour earlier that he could retire; Be done working forever. Think about that the next time you want to pay $150 for a pair of sneakers.

Credit Cards are Evil

One more tip on controlling spending is to cut up all of your credit cards except one for emergencies only. When I was in my 20s, I cut them all. Every last one. If I couldn’t pay cash for it, I didn’t buy it. There were times I was scraping together spare change just to gas up my car but it was a sacrifice I needed to make to achieve my ultimate goal.

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Bottom line, spend less than you earn and stay out of debt.

#6 Save found money, unexpected windfalls, and spare change

Every year you receive a check from the government in the form of a tax refund. We can debate weather it is really a refund or your money just finding its way back to you. But what do you do with this money? How do you account for it? If you are budgeting your spending based on your monthly income then the tax refund is like winning the lottery. Do you save it or spend it. I’ll give you one guess what the rich do. That’s right, they save it.

Rather than run out and spend money that you weren’t expecting, you must show a bit of self control and save it. If you have credit card debt, put the entire check towards the principal. Or, Deposit into an emergency fund. Or, Put the whole check into your Robinhood account. Just don’t spend it. This goes for any other found money such as pay raises or bonuses you may receive at work.

The rich also save their spare change.

I know it sounds silly but it adds up. I cash out jars full of change $200 at a time. In today’s digital world where we use credit and debit cards like cash this may seem difficult however, there is an app for that.

Acorns is an app that will take your credit card and debit purchases, round them up to the nearest dollar and deposit the difference in an account. You can also set up automated deposits in the amount and frequency of your choosing. It is basically the modern day equivalent of a piggy bank. They even offer investment options. I use acorns as part of my own savings program. If you sign up using this link we will both get $5. 

#7 Invest and take advantage of compound interest

Ok, you’ve come this far and have a good understanding of the financial habits of the rich. You have found that you have the ability to budget, you are saving spare change, you are ready to You may be asking yourself now what? Should I put this money under my mattress? In a bank account earning almost no interest? Inflation is going to eat away at your savings at 2% to 3% a year.

You are going to need to invest this money and grow it at a rate faster than inflation can destroy it.

There are a million different options for you to invest your money. Poke around earlyretirementearl.com and you will come across several. What is important is that you are finding a way to earn an interest level above inflation and allow time to take over. I use simple index funds most of which have historical performance that matches the overall markets. About 7% per year. You can find funds that mimic the S&P 500 or the Dow that you do not need to spend any time managing. Simply invest and allow the market to do its thing. That is the reason I love index funds. Index Funds are hands off, diversified, low cost, and have a proven track record of yielding consistent gains over the past several decades.

If you are still feeling uneasy about taking your investments in to your own hands, here are 3 articles to help.

How to manage risk when investing in the stock market

The Pros and Cons of stock market investing

Is it time to hire a financial services professional?

Consistency is key

Remaining disciplined and consistent has allowed me to earn an average of 7% annually on my investments. The magic of this is that you will earn interest on your principal plus the interest you earned last period and so on in perpetuity. The beauty of compound interest is that, over time, you will earn interest on the interest. Eventually, your interest will far eclipse the principal investment.

Compound Interest at Work

Take the following example…

You save $100 at 7% interest. At the end of the year you have $107. Next year you earn 7% on the initial $100 plus the extra $7 you earned in interest last year. At the end of year 2 you have $114.50. Year 3, $122.50 and so on. By year 10 you have doubled your money without investing another penny. This is fun, lets keep going. Year 11 = $210, year 21 you have quadrupled your money. In 50 years your initial $100 is now $2945.70.

If you really want to see compound interest at work take this example. If you invest $100 every month for that 50 years you end up with over $500,000. Still think you can’t find $100 a month to save?

As I have just demonstrated, time is the most important ingredient in the compound interest formula. I wrote an entire article dedicated to explaining the effects of compound interest which you can read here.

It is never too early to start.

I was in my 40s before I really became committed to assuring my financial security. Lucky for me my employer was looking out for me and my 401k was in great shape. I am now in a position where I have committed to saving over 40% of my income with the hopes of becoming financially free before I turn 50. Thanks to the good financial habits I have learned and I have now passed on to you, I will be in a position to quit the rat race and live life on my terms. I said it is never too early to start but it is never too late either. Had I developed these habits 15 years ago I might be retired right now. Conversely had I not developed them when I did I might never retire.

I started this article by asking the question of the wealthy, why not me? It wasn’t until I looked for the answer that I was able to put myself on the right track to become financially independent.

I hope this was helpful. Please look around at the rest of my articles, leave comments, bookmark us and come back later.

Thanks

Earl