3 lessons from the wealthy.

Most wealth is built from consistent actions practiced over a long period of time. Just like it is easy for us to see someone successful in business and assume that they were an ‘overnight success’ when in reality they have been in business for 10+ years, it is easy for us to also assume that someone just got lucky and wealthy overnight. Warren Buffet has been investing since he was 10 years old (you can’t make this stuff up!). At 10 I was spending all of mine on ice cream at the local dairy and polly pockets - anyone else or just me?

There are the rare occasions where someone gets a windfall, sells a business for millions or wins lotto. Although I am sure you have heard the stories of lotto winners who go broke - statistics show 70% of winners end up broke and a third of those end up bankrupt! Why? Because they didn't apply the habits and mindset of the wealthy which is key to not only amassing wealth but more importantly keeping it.

With that said, lets dive in!

#1 Save before you need to

You might want to sit down for this one…. Stats NZ shows that New Zealanders are spending almost everything they earn, with only about $700 million in household savings in the March 2020 year. $700 million sounds like a ALOT, but it’s the equivalent of each occupied household earning about $412 more a year than they spend. Let me put that another way - the average household in NZ is only saving $1 a day! I have also personally seen this first hand since most of my clients come to see me because they always assumed that they struggled to save because they were not earning enough, however over time come to realise that they are earning really good money but still struggling to save. Saving before you need to is a muscle that you can learn to exercise no matter your income. The best way to start saving before you need to is to concentrate on 2 main areas:

Having an emergency fund

Putting money away from each paycheck towards saving for irregular but likely expenses (trip to the dentist, car repairs, Christmas, gifts, holidays)

#2 Pay yourself first

Paying yourself first comes from the concept that if you pay for all your bills and spend your money on things after getting paid and are only saving and investing what you have left over (and if you are a spender like me usually there seems to not be much left over!), you are in effect ‘paying everyone else’ - the owners of the bank, the supermarket, the clothing stores, the gym, the restaurant down the road etc. first, before yourself.

So how do you pay yourself first? At our household, when we get paid, we physically transfer money out to savings and investment accounts first - no exceptions. Then what is left over is used for fixed household expenses (mortgage, insurance,electricity, etc.) and also nice to haves such as eating out and entertainment. Since you know you have already ‘paid yourself first’, you can sit back and enjoy spending the rest guilt free!

Bonus tip: The key to this is making sure that you have a curated money plan (aka budget) worked out so that you don’t transfer too much money into your savings and investments then realise that you didn’t leave enough for spending for the rest of the month/until your next paycheck - which means you end up pulling this money out again to spend. This is vitally important because you don’t ever want to get in the habit of pulling out savings or investments for day to day spending! Those accounts are a one way street my friends! Pay particular attention to this because it is one of the top mistakes that I see my clients making all the time.

#3 Measuring wealth by not what you own, but how long you could live for without working

The wealthy will concentrate on how they can buy back their time by using their money to work for them, rather than concentrating on how they can buy more things (which leaves less to invest = less passive income).

In our consumerist society it is easy to see what everyone owns, however what you can’t see is any underlying debt or stress that is funding someone’s lifestyle. Of course there are wealthy people who love and can afford their luxuries.

But reality is that the latest Canstar Consumer Pulse report shows that most Kiwis live above their means - with a shocking 58% of us spending more than we earn. It gets worse - 2 out of 3 New Zealanders don’t have enough money put away to survive on for two months without income.

Rather than measuring ‘how well’ they are doing by the size of their house or whether they have the latest SUV, the wealthy measure their success by how long they can live for without working (is this days, months, years, generations).

They understand that there is no better luxury than being able to get up every morning and do whatever you want to do that day and every day after that, not just on a weekend. There is no car that is worth more than the ability to make decisions based on what you love doing, rather than what will pay the bills next week.

What habits of the wealthy are you going to implement into your own life?

Photo by Michael Marcagi

Disclaimer: The above is formed from my personal opinion and general financial knowledge. As always all my posts and content are for entertainment, inspiration and education purposes only and is not financial advice.