Probably the second most common New Year’s resolution is to do better with finances (the top one is to lose weight). If one is looking to lose weight, obviously it is better to get advice from that friend who lost 50 pounds and kept it off than to ask the one who is overweight and keeps going on yo-yo diets. With making and keeping money, the people to follow are the wealthy who hold onto money – not the friend with the fancy car who is up to debt to his eyeballs. Unfortunately few of us know many wealthy people since the average person is deep in debt.
Luckily, in his book “The Millionaire Next Door,” Mr. Stanley has given us some tips drawn from actual millionaires. These are people who became wealthy and stayed that way. If your resolution is to do better with money, here are some tips from them:
1. Control your money. This means having a budget which says what you will do with every dollar you get for the month. This should include all of your expenses, money directed into savings/investing, and some money to be spent as desired (you need to have some freedom). If needed, use a system of envelopes and cash with labels like “groceries,” “clothes,” etc… to make sure you stick to your budget for each area. While it may seem restrictive, you’ll generally find that you have more money than you thought if you stop blowing money on unplanned purchases throughout the month.
2. Get rid of payments. Rich people don’t buy things on payments. If you are paying interest you are paying more for things than they cost and you will never have nay money to save and invest. Rich people save up and pay cash.
3. Build your pipelines. Rich people buy assets – things that grow in value and pay them money. Things like stocks, bonds, and real estate. This means that every month you’ll have more money coming in than simply what you earn from working. Use some of the money you get from these assets to buy more assets, and you’ll be putting your wealth growth on turbocharging!
4. Only buy what you need. Rich people don’t buy lavish houses, relative to their net worth. While Bill Gates has a multi-million dollar house, his net worth is also many billions. People with 1-10 million dollars don’t have McMansions in general. They have solid, well-built houses in established neighborhoods. They know that too much space means more maintenance and cost.
5. Spend your time at your profession or with your family. Rich people don’t fix the car or mow the lawn unless they enjoy doing it or it is the only way to get the job done right. Rich people would rather spend the hours they would be doing such tasks making more money at their profession and hire professionals with the right tools for such jobs. Spending extra hours at work can also help you get ahead – spending all day fixing a water heater will not.
6. Find ways to make money that can multiply your time. If you rake leaves in yards for $50 per yard, you can only make about $200 per day since you can only rake so many yards. If you hire people to rake leaves, pay them $40 per yard and keep $10, you can make as much money as there are yards to rake. The easiest way to become wealthy is to do something that can multiply your time. Write a book. Start a business with employees. Invent something.
Everyone can become wealth. Make it your New Year’s resolution to start on your way.
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Disclaimer: This blog is not meant to give financial planning or tax advice. It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.