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How Millionaires Manage Their Money Differently?

How Millionaires Manage Their Money Differently?

Wealthy people manage their money differently than everyone else. They make different decisions and have an entirely different way of thinking about money. But even if you’re not wealthy, you can still manage your money like the wealthy do. It’s step one of becoming wealthy. There are 10 specific ways wealthy people manage money differently than everybody else.

1. The wealthy forget about instant gratification.

Humans are wired for instant gratification. We love it. But evolution made us that way long before our modern monetary system came about. The desire for instant gratification doesn’t help us when we’re trying to become wealthy; it hurts us. Stop making decisions that will make you happy now, but mess up your future wealth.

2. The wealthy understand the difference between wants and needs.

“We need a bigger house,” you may say. Don’t confuse wants with needs. A common mistake poor people make is to disguise wants as needs as a way to to justify them. Then you feel better about making a poor financial choice. Wealthy people understand the difference between what you need and what you want. Know the difference between a want and a need and don’t lie to yourself about it.

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3. The wealthy invest automatically.

There are ways to automate investment, such as payroll deduction to a retirement account, which is great, but the mentality of investing is more important. Automatic or not, wealthy people believe so strongly in investing that they do it as habitually as you brush your teeth in the morning. There’s no question about how much they invest, they know how much they must invest because they set goals (we’re going to get to that) and know how much money they need to reach those goals.

Roy Sheppard, millionaire and finance expert says, “Save 15% of everything you ever earn for the rest of your life.”

4. The wealthy understand the cost of debt.

“What are the monthly payments?” is what poor people ask when considering a car purchase. That’s the wrong question. A better questions is “what is this car really going to cost me?” When you multiply the monthly payment by the number of months of the loan, you’ll see a shocking number that’s way more than the cost of the car and that’s before depreciation, taxes and other expenses. This is the number you have to be comfortable with. Better yet, be uncomfortable with it and keep your old car.

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5. The wealthy start with a goal and work backward.

Know what you want and what it’s going to take to get it. If you don’t know what you want, you’ll get something that’s the result of a bunch of decisions made for instant gratification. Most likely that will be poverty. Decide what you want your life to be like, figure out how much that will cost and do exactly what you need to do to get there. 

Josh Simon, 28-year-old real estate millionaire, says, “Figure out how you would like to live in retirement, come up with a number, then work on a strategy to realize that number. ”

6. The wealthy live within their means.

The great thing about investing automatically (see number 3) is that it basically takes care of this one. If you start by investing as much as you must to reach your goal, you can take what’s left over and do whatever you want with it. By making saving a priority, you can’t spend more than you can afford to. The important thing is that you spend way less than you make. To reiterate: spend way less than you make.

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7. The wealthy make short-term sacrifices

Think bigger than right now. Think about the future effect your decisions will have on your life. The whole point of getting wealthy is to have more of what you want. But sometimes you have to trade off what you want now for more of that or something better later. Think bigger than what you want right now.

8. The wealthy get help.

Know what you are good at and leave the money management to a professional. Focus on the unique value you bring to the world to make money to invest. Don’t be completely clueless about managing money either. Understand the basics at least well enough to know what your financial advisor is telling you. The information is cheap and easy to get. Wealthy people have written lots of books about it.

Millionaire entrepreneur, Vladimir Gendelman says, “I know how to build and grow businesses, but I leave my money management to a professional financial advisor.”

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9. The wealthy do math.

We’re not talking about trigonometry and advanced polynomials; just simple addition, subtraction, multiplication and division — third grade stuff. Wealthy people run the numbers when they make a decision. For example, poor people believe that when a car begins to have problems, it’s better to get a newer car so they don’t have to spend as much for maintenance and repairs. This is not necessarily true. You can spend thousands of dollars a year repairing a car and be financially way ahead when compared to buying a car. Think about all the expense of a car purchase. Do the math.

10. The wealthy take advantage of opportunity.

Wealthy people know that things like IRA’s and 401k’s are tax-free or tax-deferred growth and they take full advantage of them. When an opportunity like that arises, take advantage of it. If you also do the math (number 9), you’ll see exactly how beneficial this is.

Managing money like the wealthy is learnable and it’s not hard. If you want to be rich, manage your money using thise 10 principles and you’ll be on your way. You’ll have to make some sacrifices in the short-term, learn some stuff and work hard to earn the money you invest. The result is a really cool tool that lets you do a lot of good in the world and have a blast doing it, which is all anybody really wants. If you can’t handle all ten, just remember this: spend less than you make.

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Last Updated on July 10, 2020

The Definitive Guide to Get out of Debt Fast (and Forever)

The Definitive Guide to Get out of Debt Fast (and Forever)

Debt can feel crushing, like a weight that is always weighing you down. Looking at those numbers, it can feel as if you’ll never get out from under it. However, if you really want to learn how to get out of debt, it is possible with a great deal of focus and self-control.

Getting out of debt isn’t impossible. Like any big goal, all that it takes is an action plan to identify where you are and creating a plan to zero out your debt.

Identifying All of Your Debts

The first part of paying off your debt is getting a complete picture of what you owe. When you have everything written out in front of you, it makes it much easier to create an action plan. Depending on how much you owe, it might also help you realize it’s not as bad you might have originally thought.

Here’s how you can get started identifying your debts:

1. Own Your Debt

Before you start identifying all of your debts, take a moment to process that you have debt but want to get out of it.

Forgive yourself for any past mistakes, missed payments, or overspending. It might be painful to accept how much debt you have at first, but you must own it.

2. Make a Debt Tracker

It’s astonishing how few people ever created a tracker to understand their total debts. Most likely, it comes from not wanting to accept the guilt of having debt, but, if avoided, it can make it nearly impossible to get out of debt.

Open up a new Google or Microsoft Excel sheet and list out all of your debts. Start with the name of the creditor, interest rates, total balance, loan term length (if any), and the minimum amount due each payment. This will include student loans, credit cards, and any other type of debt owed.

3. Get Your Debt Number

Once you’ve made your debt tracker and taken the other steps, identify your total payoff number. This is crucial, as you will have a starting point and a clear goal that you are trying to achieve.

Prioritizing Your Debts

All debt is not created equal. It’s imperative to understand that there are different types of debt.

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1. Understand Bad and Good Debts

Bad debts are usually paying for things you want instead of always need. While there might be some emergencies that max out your credit cards, often times it’s excessive spending[1].

There are three main types of bad debt:

  • Credit Card Debt: The average American household owes over $16,000 in credit card debt!
  • Auto Loan Debt: According to CNBC , the average auto loan in the US is $30,032!
  • Consumer Loan Debt: Consumer loan debt isn’t as common as credit card and auto loan debt, but it’s still considered bad as interest rates are usually between 10-28%.

Good debt is identified as investments in your future. Here are three common types of good debt:

  • Student Loan Debt
  • Mortgage Loan
  • Business Loans

2. Decide Which Debt to Pay off First

Once you know each type of debt and their interest rates, you can begin to pay off debt quickly.

Focus on paying off bad debt first, regardless of if it is a credit card or auto loan. Start by paying off the loan with the highest interest rate first.

If you have several credit cards with different interest rates, you want to focus on the one with a higher APR. You will actually save more money by eliminating the card with the highest interest rate.

3. Don’t Pay the Minimum Amount

Paying the minimum amount digs you into a hole as interest rates will offset your payment. Even a small amount more than the minimum can help you pay off debt much faster.

Removing Obstacles to Pay off Debt Quickly

Creating a debt tracker and prioritizing a plan is simple, but avoiding temptation can be difficult.

1. Set a Reminder to Track Your Debt

“If you can’t measure it you can’t manage it.” -Peter Drucker

It’s so important to track your debt to ensure that you get it paid off quickly. Similar to working out and measuring your results, you need to track your debt constantly. Start with a weekly reminder, where you sign on and log your updated number. Did you increase, decrease, or stay the same?

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Regularly tracking your student loan balance can be incredibly motivating, as well. You will get a huge confidence boost each time you see your total debt amount decreases.

Set weekly and monthly goals so you can have short term wins and keep the momentum going.

2. Hide Your Credit Cards

If your biggest debt is credit cards, you need to eliminate temptation and remove them from your wallet.

Some people have gone to extreme measures by freezing their credit cards. Why? This would create an ice block around your card, which would require you to chip away at it slowly. This will give you time to think if it’s the best idea to buy that thing you’re about to buy.

3. Automate Everything

Willpower can be a huge downfall to paying off your debt. By automating your bills each month, you will ensure that willpower isn’t involved.

4. Plan Ahead

Getting out of debt will require some sacrifices, but with enough planning, you can make it work.

For example, if you know that you have a friend’s birthday or family dinner coming up, plan ahead for the costs. Whether you need to cut back on spending the week before, pick up a side job, or meet them after dinner, do what is needed.

5. Live Cheaply

The only way to get out of debt is to make some sacrifices on your spending habits. Find ways to save money each month so you can apply that amount to your outstanding debts. Here are some ways to save money each month:

  • Live with roommates
  • Cook dinners and prepare lunches for work instead of eating out
  • Cut cable and choose Netflix or Amazon Prime
  • Take public transit or bike to work

Finding the Lowest Interest Rates

The higher your interest rates, the harder (and longer) it will take you to pay off any debt.

If possible, you want to find ways to lower your interest rates to help get out of debt quickly. Here’s how you can get started:

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1. Maintain a High Credit Score

Your credit score will have a large impact on your ability to refinance your loans and receive a lower interest rate. If you have a low credit score, it’s unlikely you will be able to refinance your loans. Use these credit tips to increase and maintain an excellent score:

  • Never miss a payment
  • Don’t exceed 30% of your credit limit
  • Don’t sign up for more than one card at once
  • Limit hard inquires, like auto-loans and new credit cards
  • Monitor frequently with free credit-tracking software

2. Find Balance Transfer Offers

Start by opening a free account on credit.com. Credit.com offers you the chance to open a free account and see what type of balance transfer offers you can receive. Some of your existing credit cards might already have 0% or lower APR balance transfer offers available.

Contact each of your credit card providers to ask about lowering your rate for a one-time balance transfer offer[2].

If you do take advantage of this option, make sure that you use a balance transfer and not a cash advance. Cash advances have a ton of high interest fees (15-25%, depending on your credit card) and will only compound your debt problem.

How to Get Rid of Debt Forever

Setting up a plan, removing temptations, and getting the lowest interest rates is the first step to get out of debt.

1. Keep Monitoring and Adjusting

Once you have a plan, don’t get comfortable. Track your debt payoff plan and make the necessary adjustments when needed.

Monitor your credit scores with a free site like CreditKarma. The higher your credit score climbs, the more likely you will be to secure a new, lower-interest loan.

2. Earn More Money

There are only so many ways to save money. Instead of clipping another coupon or making sacrifices for your morning coffee, find ways to earn more money!

Think about it…it is much easier to find ways to earn an extra $1,000 per month than find $1,000 to cut from your budget.

Here are some examples of ways to earn more money:

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Talk to Your Boss

Have a conversation with your boss about current salary and/or commission rates. If you’re not satisfied or want a change, don’t be afraid to look around at other positions. Some of them might even have a student loan debt reimbursement plan!

Start a Side Hustle

This could be coaching students on the weekends, driving for Uber, or taking paid online surveys. There are tons of ways to make money outside your 9-5. Now that you have a clear plan to pay off your debts, you’ll be more motivated than ever to figure out creative new ways to earn money.

Build an Online Business

There are so many websites and blogs that earn money from ads, affiliates, and other online products. Find your niche and get started.

3. Celebrate Your Wins

As you progress in your debt payoff journey, don’t forget to celebrate your wins. You need to always reward yourself for the hard work and discipline that is required to get out of debt.

While you shouldn’t celebrate so big that it increases debt, make sure to factor in little rewards to keep you motivated.

4. Set New Financial Goals

Eventually, with a plan and these steps, you can rid yourself of your debt. Once you do, make sure to celebrate your monumental achievement, but don’t stop there.

Now, you can focus on acquiring wealth and increasing your net worth. Set new financial goals so you have a new target to aim toward. Here’s how to set financial goals and actually meet them.

These could be anything now that you are debt free! Think about where you want to travel, buying your first home, or saving for your future retirement. Just like before, make sure that your goals are specific, measurable, and achievable.

Conclusion

Congrats, you can now set a plan in motion to finally pay off your debt quickly (and hopefully forever)!

Remember, if you want to get out of debt quickly, it’s not always easy. Just like any big goal, there will be sacrifices, challenges, and problems to overcome.

More Tips on Getting out of Debt

Featured photo credit: Pepi Stojanovski via unsplash.com

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