All of the below tips and habits will make you richer. Habits compound—like money in a bank account—so the longer you stick with them, the better your results.
I. Work on your attitude.
Seriously, it will provide more benefits and more hard cash in your pocket than any technical tips. We are programmed by our social environment to think all sorts of strange things about everything. If you were lucky and you had the right social environment, you would believe good things about possessing and managing money and those beliefs would make you richer.
Most of us, unfortunately, got crappy programming. Even today, schools are doing very little to change this (kids are taught tons of facts, but there is not a single lesson in the curriculum about how to save money).
Advantageous beliefs and habits:
1. Debt is your enemy.
Debt compounds like the interest rate on your savings compounds. Uncontrolled, it will eat your finances alive. Controlling this consumes so much of your brainpower and mental energy that it’s best to avoid debt altogether, as a principle.
It’s hard to put debt-avoidance in the context of habit, it’s rather what you DON’T do: you never ever borrow money.
2. You are responsible for your net worth.
Not your daddy, not your boss and not your wife (yeah, I know she loves to spend, my wife loves it too; still, take the full responsibility). If you don’t accept this belief, everything that regards your money “just happens” to you. Control over your cash flow is in most cases just an illusion (for example a car accident can wreck your vehicle, your body, your career and finances), but it’s a necessary illusion, so you will act proactively to grow your wealth. Nobody will replace you at this job.
3. Be grateful.
And be grateful about more than merely your material possessions or the level of your salary. Be grateful for everything. William W. Wallace, the author of “The Science of Getting Rich”, prescribes gratitude as the way to stay in touch with a mystic element of the universe that provides abundance (his theories were a precursor to The Law of Attraction, ideas which were more sensible than the modern versions).
Science confirms that when the brain is positive, every possible outcome we know how to test for rises dramatically. By “every outcome” they meant also net worth, savings, salary levels and chances for career advancement. And gratitude is a shortcut to making your brain positive.
A relevant habit: write down every morning three new things you are grateful for.
4. Pay with cash.
In the era of plastic money, we have a tendency to not see money as real… till it is too late and reality is biting you in your rear. Credit cards provide the illusion of abundance when in fact each use of plastic money moves you further toward poverty. To avoid this trap, pay for everything in cash. When you hand your cash money to someone else, it has a real feel. Your mind will not be lull into airiness.
A nice piece of belief is this: “If you cannot buy an item with cash, you cannot afford it.” You should never take a loan if you don’t have enough cash stacked to buy the item in cash in the first place.
5. Track your expanses.
Track all of them. I note down a sum when I buy bread or a bread roll. I register every single cent that goes out of my pocket in an Excel sheet. This discipline makes me more disciplined when spending money on anything.
The habit of tracking expenses provides you some much needed awareness of where your money goes. Carelessness and ignorance are the allies of poverty. Impulse spending will decrease significantly when you have to register each of your impulses on paper.
6. Keep the company of rich/frugal people.
Attitude is contagious. When you spend time with people who wisely manage their money, you’ll become better at this yourself.
Of course the ‘example’ is more effective when they actively mentor you, give you advice (and you actually take action to implement it). But being around them is the basic requirement. Your copying mechanisms will work even in the background, it’s how people are wired, and it’s how children learn life.
This activity may be easily habitualized. Simply find an appropriate group of people and engage with them on regular basis. Play sport with them, volunteer with them or attend church services. Absorbing attitudes from others works better offline, but it works online too. If you cannot think of an opportunity to find such people in your neighborhood, find them in Facebook groups or forums.
II. Work on yourself.
“Work harder on yourself than you work on your job” – Jim Rohn
You are responsible for your net worth, so you need to take care of your most precious asset: yourself. This ‘taking care of yourself’ takes different forms and for some people is more required in one area than in others. But it’s hard to get rich, satisfied and happy, if you neglect any of them.
You need an underlying theme for your life: a goal, vision or meaning. Well, you need it if you want to be richer. Otherwise you will waste loads of mental energy on struggling with the overall sense of your existence. You know, if life makes no sense, what sense is there getting richer?
Searching for your purpose and following it once you’ve found it can be habituated. Journaling or prayer make good disciplines if you are looking for your life’s meaning. And once you get it, you build your life around it.
Every day, I repeat my personal mission statement in my mind. It’s my compass that keeps me directed toward my purpose.
Exercise regularly. Eat well. Sleep well. Avoid stress.
“Well” may mean something else for you and me. Define ‘well’ for yourself. I know people who avoid this food or that food, or who are vegans.
We’ve all heard that broad, sensible advice, but so very few follow it. Develop appropriate habits: exercise, eat vegetables, drink more water, go to sleep earlier, meditate. Perform them every day.
When you are healthy, you are capable of more. You also don’t waste time and money because you need to meet with doctors and buy medicines.
“Formal education will make you a living; self-education will make you a fortune.” – Jim Rohn
Jim was right.
I’ve 5x my income in the last five years and it has been a massive learning curve. You cannot stop at what you learned at school. Your value grows the more you know and apply at your businesses or jobs.
Increasing your value doesn’t end with gaining some technical skills or knowledge.
Read every day. Listen to something valuable (audiobooks, podcasts, audio programs) every day. If it’s your thing, watch videos (e.g. TED talks). I hate video, but each time I’ve forced myself to watch a TED talk I always end up a bit wiser). Accept the fact that you will be learning your whole life. That’s how you increase your value.
III. Work on your money habits.
A few habits I mentioned in #I (paying with cash, tracking expanses) could qualify here as well.
1. Learn to save money.
a) Pay yourself first
This was the saving lesson that contributed most to my financial situation. For years I struggled with amassing money. Then in autumn 2012 I read “Start Over, Finish Rich” by David Bach and learned about the importance of paying myself first. I started very timidly, from $60 bucks, about 3% of my income. In a few months I grew that to about 20% and never looked back.
You may think about yourself as frugal, a good money manager. I thought that about me. I had been keeping budgets for about 3 years at that time. Even so, the simple act of reserving my own money and not spending it, fixed most of my money problems. All I did was use a savings account.
If you have no money to spend, you simply don’t spend any.
Decide on a fixed amount or percentage of your income to save. Then, as soon as the money lands in your account, transfer the savings to an account that is not easily available. I do that with every buck I receive. It works.
b) Don’t dip into your savings
That was another reason I never could stash away my ‘rainy day’ fund: there were always some urgent issues we absolutely had to spend our money on. Buying our first apartment, then furniture for it, then our first car, vacations, buying our first house, its furniture, renovating it… the list goes on.
Create a list and separate everything important and unimportant. Don’t look back on those not necessary. Pretend you are broke and work from there.
c) Save excess
I achieved most of this ‘rebuilding’ feat by stacking away the excess. There are different strategies for that. Brian Tracy said you should always save 50% of every salary raise or additional money you get. Jeff Olson, a millionaire whose book set me on the life change path, kept his budget at $4,000 till he grew his fortune and was comfortable with increasing the household budget.
I use a combined approach. I have a fixed budget for necessities: bills, food, clothes, medicines, etc. I don’t allow a dime over this budget to be spent on such things. In fact I save and reinvest 56% of every additional dollar over my budget. I use the remaining 44% for various objectives, but they are never connected to everyday consumption.
Reinvestment is key to growing more wealth.
2. Pay bills and taxes on time.
This goes back to point I.1. If you don’t pay your bills and taxes on time, you just incur another kind of debt. You will have to pay these things anyway, but most likely there will be extra fees if you are overdue.
3. Be aware of your cash flow.
Part of it is knowing where your money goes. If you don’t track your all expenses (point I.5), you should at least know the main points: your monthly payments, your loans, rough food spendings estimation, household maintenance etc.
But part of it is knowing where your money comes from, too. You’d be surprised, if you ask around, how many people don’t know how much they earn from various sources. It’s quite simple when you have a stable paycheck, but even a regular paycheck still fluctuates, especially if there are bonuses or commissions involved.
Most people have a vague idea how much they earn, but very few people know the exact amount every month. Some may know their salary pretty well, but have no clue how much child benefit they receive. But every incoming cent counts.
I recommend to track your income as well as your expenses. It’s especially important if you start any additional activity.
4. Consolidate your debt.
Most people have debt, despite the fact that it’s very unwise. Most people also have no idea that they can consolidate their debts. The more debt sources you have, the more probable is that you can merge few of them and get better conditions. Educate yourself. Call your bank. Ask friends if they ever consolidated their loans and how to do it. Everything can be re-negotiated, starting from your short-term consumer loans and finishing at your mortgage. You should redirect the surplus you will achieve into paying off your debt of course.
IV. Live frugally.
The key to getting richer is spending less than you earn. That way your surplus has a potential to grow steadily. If your income is smaller than your expenses, you are getting steadily poorer. You are always on one side of this equation and you should do everything in your might to be on the right side.
1. Control your bills.
Do you know how much you pay for energy? Water? Gas? Keep track of it all. It benefits you in the long run.
Knowing the bottom line you can proactively decrease your bills. Use installations that save water. Check your energy expenditure. A significant amount of electricity can often be saved with minimal investment. I changed all the lights in our home to LED ones and it saved me about 10-20% of our monthly energy bill.
2. Negotiate your deals.
Do you know how much you pay for cable TV? Your mobile? Internet? You’d better know! And you’d better negotiate those deals. Depending on the competition in your country, it may be as simple as calling your provider and blackmailing them that you will go to their competitors. If it’s not so easy to change or reduce your current terms, just be careful when you sign the next contract. I use a contract-less mobile line that I have the freedom to cancel anytime the bills go up.
3. Buy used stuff.
The obsession of modern culture about new stuff is downward dangerous. The only advantage of new over “old” is the producer’s guarantee and in most cases that is pretty useless. Ask anyone who has tried to complain about faults in their shoes.
4. No impulse purchases.
Never ever buy something when you feel like you want the thing so very much. Take a break. Go out of the shopping mall. Close the browser. Go back to the purchase after a week or so. If you still feel like buying the item, now it’s the time to do it. If you buy under the power of impulse, usually it’s due to marketing buzz, not a real need behind your decision.
5. Wait for opportunities.
If you know that you will need some more expensive items, take your time and hunt for discounts.
In respect of any purchase, if you wait long enough—if you can afford waiting—you will get more for your money. Wait for 11.11 or 12.12 sales if the need is not urgent. There is so much competition in retail that you will get a hefty discount every time you wait a few months before making any purchase.