A lot of people think that becoming a millionaire is simply a matter of coming up with a great business idea or working your way to the top of a fortune 500 company. What they don’t realize is that many people who earn upwards of 100k per year are still living paycheck to paycheck.
The road to financial independence is not based entirely on your income, it has more to do with how you think about money. There are four key components to the millionaire mindset. Mastering them isn’t guaranteed to make you rich, but it is certainly going to get you on the right path.
1. Learn the Difference Between Assets and Liabilities
We all know the traditional definition of assets. Things like homes, investments, and cash all add a nice big plus sign to your net worth. However, an asset is not just something that has value. It’s something that adds value.
Let’s say, for example, you want to buy a car. The car certainly has value, but it will not add a single dollar to your net worth. In fact, it’s going to cost you money. Every month you’ll have to pay for gas and insurance. The car’s value will depreciate as it ages, it’s value decreases every single day that you own it. This makes the car a liability.
If you were a taxi driver, the car would be an asset as it makes you money every day. But for the average consumer, a car is often nothing more than a money pit. Thinking this way will remind you to spend your money only on things that will help you grow financially.
2. Identify Ways to Generate Passive Income
Most people earn their living by working a job. This is an example of an active income. You have to go to work every weekday, if you want to continue to earn. If you stop going to work, you stop making money. Your wealth is limited by how much you can work.
For most people, generating passive income is a simple matter of making some financial investments. Investing in the right stocks or bonds can earn you interest every month, without requiring any direct involvement on your part. Many millionaires look for other sources of passive income, for example investment properties that are rented out through a management agency.
Another example would be investing in online or offline businesses. Remember, you don’t necessarily have to invest money. You can also invest time. Creating a business that runs on its own, like a website, will require a little more work up front. But once the work is completed, it’s a set-and-forget system.
3. Don’t Let Yourself Be Influenced by Fear
“Buy low, sell high” is a common colloquialism used in reference to business. This can pretty accurately sum up nearly every piece of business advice you’ll find online.
Remember the economic collapse of 2008? Financial publications would have had you believe that anybody investing in the stock market during this time was simply a fool! And yet for the three years following the recession, the average annual gain was a whopping 11.9%
Billionaire investor Warren Buffet said it best himself: “Be fearful when others are greedy, and be greedy when others are fearful.”
4. Live Below Your Means
It doesn’t matter if you make $20 thousand per year or $200 thousand, it’s important that you live below your means. People have a natural tendency to start spending as soon as their income increases, but you have to save whatever money you can. Start today.
Even if you can only save $10 per month, it will be a start. Next time your income increases, whether it’s from a raise or one of your investments, try to add this money to your savings, instead of spending it upgrading your lifestyle.
The thrill of material possessions fades rather quickly. But one day, you’ll be presented with an opportunity. Maybe the perfect house for you to start a family in, or maybe a chance to invest in an up-and-coming business. When opportunity strikes, you want to make sure you have the financial resources to take advantage of it.
Featured photo credit: Sebastien Cosse via flickr.com