I love this quote by Jim Rohn because it boils down success to its very core. It is, of course, applicable to personal finance and the reason why some people create wealth and become millionaires, while others do not. So, what it is it that makes all the difference? Habits. Habits are the fuel used for reaching your lofty goals. And, ironically, it doesn’t need to be hard to implement. It just needs to be done consistently. So without further adieu, here are 8 millionaire habits that will help you get onto the fast track of FIRE (financial independence/retirement early).
Millionaire Habit 1: Set Goals
Research has shown time and time again that those who write down their goals have a much higher likelihood of achieving them. Millionaires have a vision. They have learned how to take that vision and break it down into bite-sized pieces that are achievable. They know that each step will leave clues (good or bad) towards their outcome. If you truly want to reach FIRE, you’ll need to set goals specific to your lifestyle. Some of the most simple goals setting are figuring out your annual expenses and multiplying that by 25. Let’s say your annual expenses are $100,000 per year. You’d need $2.5M to live off of a safe withdrawal rate of 4% (aka the 4% rule).
Millionaire Habit 2: Manage Debt Strategically
Sure a millionaire will splurge occasionally (well maybe just me), but their natural tendency is to keep ahead of their consumption. They avoid consumer debt like the plague and choose to live below their means in order to grow their assets. Paying interest on consumer debt will erode your ability to save, so just pay off your credit cards each month…please! Millionaires will use debt instruments like credit cards to their advantage, for purposes of travel hacking, or floating purchases for free. On the other side, millionaires often use “good debt” to their advantage. Good debt is a borrowing money to create an asset that will return more to you than the interest paid. Real Estate investments are a good example of this. If you purchase your property with cash flow in mind and financing makes sense. Then you have essentially leveraged your money. This is super important for FIRE because passive income is King.
Millionaire Habit 3: Save Automatically
Millionaires pay themselves first. That means saving a good portion of their paycheck even before it has time to settle into a checking or savings account. These savings go into separate accounts that are off limits (eg .IRAs), or other investments like Sharebuilder which allows you to purchase equities or funds automatically every week. Another popular automatic savings bank is Capital 360 Savings (formerly ING Direct). And finally, contributing to your employer’s 401k (or benefit plan) on a regular basis is important. Saving up a big enough nest egg to retire early is not impossible. In fact, it’s been done by a lot more people than you realize. And the majority of those who FIRE, have figured out this simple habit of paying themselves first. After you hit your FIRE number, the rest is “gravy”. So save/invest as much as you can as early as you can. You’d be surprised by the power of compound interest…trust me!
Millionaire Habit 4: Invest in Assets
A millionaire is focused on purchasing assets… not liabilities. Popular assets include real estate, equities (stocks), and businesses. Remember Rich Dad’s lesson: Assets put money in your pocket, Liabilities take money out! During FIRE, it’s important to continue managing your assets and/or even increase them. You might even consider an independent wealth advisor at some point if you don’t care to manage your own money
Millionaire Habit 5: Read A Lot
Millionaires are inclined to read and continually increase their knowledge over time. This isn’t limited to personal finance, but also personal development, history, and philosophy. Here are some of my favorites. I’ll bet a bunch of you reading here today are a huge fan of books. During my search for FIRE, I would read non-stop! Before the days of the mainstream Internet, I would visit the library weekly for free books. I still visit, although not as often now with kids. However, I do listen to audiobooks through Audible when I drive places.
Millionaire Habit 6: Protect their Time
Millionaires understand that time is precious. They may spend their money to increase access to their own time by hiring help to perform tasks. This focus allows them to accelerate their time spent on meaningful activities with family, building assets, or doing work they love. This skill set is particularly helpful during FIRE because you want to maximize your time doing the things you love (fishing anyone?).
Millionaire Habit 7: Persist Over Challenges
Persistence is arguably one of the most important habits you can have when pursuing FIRE. Most millionaires have hit some roadblocks along their journey. And, most have overcome those roadblocks through persistence. Persistence pays…plain and simple. I suspect that some people will get discouraged when there’s a sizable market correction and their portfolios take a dive. Don’t let that be you. Have faith in a long-term investment strategy and persist!
Millionaire Habit 8: Donate to Others
Millionaires express their passions through donations to their favorite philanthropic organization. By giving, they are not only helping others but also helping themselves in the process. It’s a strange phenomenon, but millionaires swear that the more they give, the more will come back to them. Give it a try. You don’t need a million dollars to make a difference. In fact, it’s probably one of the best things to do while in pursuit of FIRE. Giving tells your brain that you already have abundance and it allows you to appreciate the FIRE journey along the way.
Habits can literally make or break us. So, the sooner you can lock in a good one, the better, especially since each is easy to do. Which ones would you like to set and forget early on? I do give my parents a lot of credit for instilling the love of reading into at an early age. And, I am also happy that I set my own FIRE goals early on. What really tips the scale in your favor is being persistent and taking action. Get a big enough WHY and everything else falls into place. Republished with the permission of Financially Alert.