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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 March 4, 2019

How to Use Credit Cards While Staying Out of Debt

How to Use Credit Cards While Staying Out of Debt

Many people will suggest that the best thing to do with your credit cards during these tough economic times is to cut them up with a pair of scissors. Indeed, if you are already in huge debt, you probably should stop using them and begin a payback strategy immediately. However, if you are not currently in trouble with your credit cards, there are wise ways to use them.

I happen to really love my credit cards so I will share with you my approach to how I use mine without getting into deep financial trouble.

Ever since about 1983 when I got my first Visa card, I continue to charge as many of my purchases as possible on credit. Everything from gas, groceries and monthly payments for services like my cable and home security monitoring are charged on credit. Despite my heavy usage, I have maintained the joy of never paying any interest fees at all on any of my credit cards.

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Here are some tips on how best to use your credit cards without falling into the trap of paying those nasty double-digit interest fees.

Do Not Treat Credit Cards as Your Funding Sources

Too many people treat their credit cards as funding sources for major purchases. Do not do this if you want to stay out of trouble. I use my credit cards as convenient financial instruments so I do not have to carry around much cash. In fact, I hate carrying cash, especially coins. When you buy things on credit, the purchases are clean and you will not get annoying coins back as change.

I do not rely on my Visa, MasterCard or American Express to fund any of my purchases, large or small. This brings me to my golden rule when it comes to whether I will pull out any of my credit cards either at a retail or online store.

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I never purchase anything with my credit cards if I do not have the actual cash on hand in my bank account.

If I really cannot pay for the item or service with cash that I already have at the bank, then I simply will not make the purchase. Remember, my credit cards are not used as funding sources. They are just convenient alternatives to actual cash in my pocket.

Make Sure to Always Pay Off Balances in Full Each Month

The next very important part of my overall strategy is to make absolutely sure that I pay the balances in full each and every month no matter how large they are. This should never be a problem if the cash has been budgeted for my purchases and secured in the bank. I have always paid my full balances each month ever since my very first credit card and this is why I never pay interest charges.

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Using Credit Cards with Rewards

Most of my credit cards are of the “no annual fees” type, including one MasterCard on a separate account I keep at home as a spare in case I lose my wallet or incur any fraudulent charges. However, I do use a main Visa card which does have an annual fee because all purchases on that card reward me with airline frequent flyer points. For me, the annual fee is worth it since I do travel and I get enough points to redeem many free flights.

You have to decide for yourself if you will charge enough purchases on credit each year without paying interest charges to warrant a credit card that rewards you with airline points (or other rewards). In my case, the answer is “yes” but that might not be the case for you.

I occasionally use a MasterCard or American Express card on small purchases just to keep those accounts active. Also, I have been to the odd retailer that accepted only a certain type of credit card, so I find that having one from each major company is quite handy. Aside from my main Visa card which earns the airline points, the rest of my cards are of the “no annual fees” variety.

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So this is how I use my credit cards without getting into any financial trouble with them. This strategy is recommended only if you are not in debt, of course. In fact, it is worth keeping in mind once you’re out of debt so that you can keep your credit cards active and treat them responsibly.

What are your credit card usage strategies? Let me know in the comments — I’d love to hear what methods you use.

Featured photo credit: Artem Bali via unsplash.com

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