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10 Ways in Which Wealthy People Think Differently About Money

10 Ways in Which Wealthy People Think Differently About Money

Do you want to become rich? The first step is to know how the wealthy think about money differently than you do and to start thinking like that. The next step is to take action, and to let the action become natural by thinking the way wealthy people think.

1. The wealthy are okay with risk

“Millionaires are willing to take risks and have the emotional strength to handle failure if a business or idea fails.” – Millionaire Entrepreneur, Robert Smith

Everything you do won’t be successful. The wealthy know that and refuse to let the inevitable possibility of failure stop them from being successful. They go ahead and fail, get back up and keep going. Don’t let fear of failing stop you from taking action.

2. The wealthy think investing is fun

“If you don’t already have an investment account, open one. It’s one of the most luxurious things you can do for yourself.” – Self-Made Entrepreneur, Elle Kaplan

The wealthy enjoy the process of making money. They’re excited to invest money into something that will bring  them more money. In fact, that gets them more excited than a vacation, a new car or a diamond-studded cat food bowl. They still enjoy those things, but they do so after they have invested a set amount of their earnings. Pick a percentage of your earnings to invest and do it as faithfully and with as much excitement as you buy your double caramel macchiato.

3. The wealthy live below their means

The wealthy enjoy luxury and impulse purchases, but never at the expense of the larger financial picture. They live below their means. They know that living beyond their means puts a strain on their finances and moves them away from their financial goals. If you want more stuff, don’t go into debt or spent savings, think like the wealthy think about money so you can make more money and raise your means, so that living within it is more fun.

4. The wealthy pay attention

The wealthy pay attention to where their money is going, where it’s coming from and if it’s getting bigger or smaller. They watch it like you watch a toddler at the mall. They know what’s going on with it and if they veer off course, they make changes. Keep your eye on your money. Look at account balances, income and expenses regularly and become more aware of your daily habits.

5. The wealthy know that money grows on trees

Well, not literally, but the wealthy know they can always make more money. There is always more to be had and it is in infinite supply. Money is just a representation of value. When value is created, money moves around – more money, more value. Add value to people’s lives and you will get money. It’s that simple.

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6. The wealthy don’t chase money

The wealthy don’t do what they do for the money. They know that money is a great tool to help people, change the world, make more money and have a lot of fun in your limited time on earth. But they don’t see it as a goal in itself. They strive to achieve something bigger than money. Don’t make money your goal. Make your goal something more important and use money as a vehicle to get there and a reward for achieving it. 

7. The wealthy know money is not evil

Average people say they want more money, but deep down they believe it is an evil force that will make them do bad things. The wealthy know that money is just a tool that will amplify whatever you already are – good or evil. Think of money as a simple tool like a hammer. With a hammer, you can build someone a house or seriously injure them. The hammer isn’t good nor bad, it’s what you do with it. Quit believing the lie that money is the root of all evil.

8. The wealthy do what they are passionate about

“I had no idea that being my authentic self could make me as rich as I’ve become. If I had, I’d have done it a lot earlier.” – Oprah Winfrey

The wealthy know that the best way to make money is to follow your passions and pursue what genuinely interests you. Do what you care about. Getting rich is a lot of work and you better enjoy what you do to get there – in fact, you must enjoy it.

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9. The wealthy think long-term

“When you make your first million, be proud. Then put it away in sound investments so it can multiply and act like you don’t have it.” – Millionaire model and entrepreneur, Stephanie Adams

The wealthy know that they must plan for tomorrow. They know that the decisions they make today determines their financial future. They delay gratification and live below their means (remember number 3) in order to be even wealthier tomorrow. Every time you make a financial decision, consider how it will affect your wealth in the future.

10. The wealthy think big

The most important way in which the wealthy think about money differently is that they think big.

“If you’re going to be thinking anything, you might as well think big.” – Donald Trump

When you focus on just surviving through retirement or paying the mortgage, you will just survive through retirement or pay the mortgage. Your brain needs something big to dream about. You must aspire to be something huge. Stop dreaming of only a million bucks. Write down the biggest dream you can think of and multiply it by 10. That’s thinking big.

If you have read this far, you probably want to be wealthy. Every wealthy person was in the exact position you are in right now. First you have to believe it is possible. Then learn and deeply internalize these 10 ways the wealthy think differently and you’ll be on your way.

Featured photo credit: photo credit: Rodrigo Soldon via photopin via creativecommons.org

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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