[Happy Monday guys :) Thought we’d start it off right this week with a pretty kick-ass article from my old friend Anton. Last time he shared with us his money lessons from growing up in the former USSR, and now – a year later – he’s officially a millionaire and shares how he achieved this. How many of these habits are you currently doing?]
UPDATE: According to Yahoo! Finance, it looks like Anton lied about a few things here… Very sad thing to learn (and he has not responded to my personal email out to him). Here’s the story, along with my thoughts: The Millionaire [Liar] Next Door
Earlier this year, shortly before my 27th birthday, I became a millionaire. It wasn’t a sudden thing and I pretty much expected it, but it felt absolutely awesome nevertheless. Checking your Mint account and seeing a cool $1 million net worth is a great way to start a morning!
What still bugs me a little, however, is the way people perceive millionaires and especially what they think about how people like me became financially successful. They always seem to be looking for some secret formula or hot stock tip that will make them rich overnight. When I tell them that I made my money through a lot of hard work, self-discipline and sacrifices they usually seem disappointed.
I can’t really think of a single thing I did that was the magic key to my success. Instead, it was a combination of daily tasks, habits and principles that helped me grow my net worth year after year.
I wanted to share 10 of these habits that I think were especially important:
1. Setting Detailed and Actionable Goals
I realize that talking about goals is really cliché. Pretty much every single “how to be successful” book I’ve ever read talked about goals at one point or another.
Well you know what? I am a testament that goals really do work! I would consider myself a goalaholic because at any given time I have over 180 or so that I’m actively working on. I started setting them just for my finances, but now do it for all areas in life.
My goals give me motivation, keep me on track and help me track my progress. I look at them every day and they help me make decisions both big and small. And most importantly – they give me a vision for the future.
2. Religiously Tracking My Net Worth
I consider net worth to be the ultimate metric of financial success. I’m really not that impressed by how much people make, but I will listen to somebody who has a high net worth.
I’ve been tracking mine since I was a teenager. I did everything I could to increase it by double digit percentages every single year and for the most part, I’ve been successful in doing so.
If you’ve never calculated you net worth, it may be a huge reality check. I’ve met tons of people who have 6-figure salaries and a net worth of less than $100,000.
3. Having the Discipline to Save 60% of My Income
You don’t necessarily need a high paying job to grow your wealth (although it sure helps!). What you do need, however, is the discipline to not spend all of the money you make. The greater your savings rate, the faster you will grow your wealth and the sooner you will be able to retire.
My actual goal is to save at least 50% of my income each month. I tend to exceed this and come closer to 60% most of the time. It’s not easy if you are used to spending a lot of money, but if you work up to it over time, it’s doable for just about anyone.
Other than just pure discipline, there are two things that especially help me save this much:
4. Avoiding Expensive Things
There is nothing wrong with shopping for the best wireless service company or trying to save money on your grocery bill. But you know what I’ve noticed? It’s the big things that tend to kill most people.
I have a friend at work who is an expert at our local gas prices. I don’t know where he gets his info, but he always seems to know where the cheapest gas is. Sounds like he is a frugal type, right? Well, he then turns around and spends thousands of dollars on new golf clubs and memberships! What sense does that make?
I’ve always tried to avoid expensive things. I don’t play golf, I don’t go to fancy restaurants, I don’t buy expensive clothes and I don’t stay at 5-star resorts twice a year. I live a simple life and devote more time to people instead of things. Try it, you might just like it :)
5. Always Paying Myself First
Believe it or not, I’m not a fan of monthly budgets at all. I haven’t followed a strict budget for years.
It’s not that I don’t think they are sexy, but I’ve found them to be too inflexible. It’s all good when your expenses stay exactly the same month after month, but that rarely happens. So you end up reworking your budget from month to month, going over your limits and feeling like you failed.
Instead, I pay myself first. Paying yourself first basically sets the priority of what you do with your money each month:
- You get paid
- You transfer money to your savings or investment accounts
- You pay your bills
- You only spend what is left
This system has helped me follow through with my savings goals because I take care of them first. My spending, on the other had, comes last and by that time there isn’t much money left to spend anyway. Plus I have full flexibility as far as what to spend it on, which works for me.
6. Completely Avoiding Consumer Debt
I can honestly say that I’ve never got charged credit card interest, I’ve never had an auto loan, a furniture loan, an electronics loan, a payday loan or any other type of consumer debt. I just don’t buy anything on credit. I either have the money in my bank account to pay cash, or I don’t buy it.
It’s that simple.
I do in fact use my credit cards to take advantage of their reward programs and to build my credit, but I pay off my balance in full at the end of each week so I never get charged interest.
This takes a good amount of discipline (it’s always easier to spend money you don’t actually have!), but avoiding consumer debt has saved me a ton of money on interest and has helped me live below my means.
I should make a quick note here about mortgages. I do in fact have two of them on my two rental properties. I’m a firm believer that you can get a much higher return on your investments in real estate if you are diligent in doing your research. And that’s a big if, mind you. It’s very easy to get yourself in trouble with this much debt, so don’t take a mortgage lightly by any means.
7. Actually Having an Emergency Fund
This is another topic that you always hear about, but I wonder how many people actually have an emergency fund?!
Putting mine together was one of my first financial goals. And I’ve actually had to use it twice. I won’t go into the details of what happened, but let’s just say I was very happy that I had the money I needed right there and then and didn’t have to use my credit card.
I keep my emergency fund in a high yield savings account. I hear about people using CD ladders or even investing theirs, but I think that completely defeats its purpose. It should be there 24/7, just a click away and you definitely don’t want it declining in value.
8. Saving Ahead for Large Expenses
So you know how I said that I’ve never had any consumer debt? Well what helped me avoid it is saving ahead for large expenses and purchases.
I keep a list of everything I plan to buy in the next few years that will be more than what my monthly cash flow can handle. This includes plane tickets, presents, maintenance on my car, moving expenses and so forth.
Depending on how long I have until I need the money, I either save for these in a savings account, CD or short-term investments like low-risk bond ETFs.
9. Investing Money No Matter What Happens
I’ve found that when building your wealth, consistency is key. I’ve been contributing to my retirement and brokerage accounts and my real estate fund (which I use for future property purchases) without fail for nearly 10 years.
I’ve invested money no matter what was going on in my life. It didn’t matter if I was strapped for cash – I put my investment contributions above everything else. When I had some extra money, it all went toward my investments.
I’ve also invested no matter what happens with the economy, the stock or the real estate market. Whether it was up or down, I was investing. Which takes me to my last point:
10. Investing When Others Panic
One of my idols, Warren Buffett once said:
“Be fearful when others are greedy and greedy when others are fearful.”
I’ll admit that I had to overcome some fears, but I’ve piled money into the stock market and real estate when everybody else was proclaiming it was the end of the world around 2008-2009.
I was fairly new to investing back then, but I’m super glad I made that choice. I’ve seen tremendous gains both in my stock and real estate portfolio in the years to come after that. I hope that the next time we have a major downturn I can do the same!
As you can see, there is nothing complicated or new about my habits. They are very simple to understand, but some do require a good amount of self-discipline to follow through with.
I think that if you set your mind to it, you can definitely accomplish the same, or even more, than me. It probably won’t be easy and it may take some time, but you too can become a millionaire.
How many of these habits are you currently doing?
P.S. If you want to check out what my net worth looks like right now,
here is my latest update.
Anton Ivanov is a
self-made millionaire, money coach and founder of Financessful.com. His mission is to help people grow their wealth, reach financial freedom and live a better life. You can follow him on Google+. [sites/accounts now shut down]
EDITOR’S NOTE: To answer Anton’s question, I’m personally only doing 5 of these 10 habits: religiously tracking my net worth, avoiding expensive things, completely avoiding consumer debt, actually having an emergency fund, and investing money no matter what’s happening. There’s been times I’ve hit close to 9 of these 10 goals before (like when I was killing it in the income area) but currently we’re in a different phase… Which I think is the case with many of us depending on when we go down this list, eh? Then again, perhaps that’s why we’re not all millionaires yet! :)
[Photo cred: JBlaze B]
Jay loves talking about money, collecting coins, blasting hip-hop, and hanging out with his three beautiful boys. You can check out all of his online projects at jmoney.biz. Thanks for reading the blog!