Growing your wealth takes time, commitment and discipline. And while not all wealthy people have the same approach towards money, there are some tried and true habits that high net worth individuals will agree can shape the path of your financial destiny.
They have a money mindset
If R10 million landed on your lap right now, what would you do? Buy property offshore? Invest in shares? Book a lavish round-the-world trip? Your answer is most likely dependant on your current financial standing, but also your financial mindset. High net worth investors tend to have a positive money mindset and a forward-thinking approach to managing their finances.
They live within their means
This simply means spending less on your lifestyle than you generate in earnings – this is the cornerstone of responsible financial behaviour. While enjoying the fruits of their labour, HNWI tend to be frugal – not spending excessively on houses, cars and luxuries. Create a habit of spending less than you earn by sticking to a realistic budget and paying yourself first.
They have emergency funds
Easier said than done, but a solid reserve of cash to tap into in an emergency is what will help you avoid taking a loan or using your credit card. Most financial experts recommend having three to six months’ worth of your living expenses set aside, but anything will help.
They avoid debt
Legendary investor Warren Buffett’s advice to young people: “Don’t get in debt. It’s very tempting to spend more than you earn, it’s very understandable, but it’s not a good idea.” Buffett is the one who famously only replaced his 2006 Cadillac DTS in 2014. As he said, “I only drive about 3 500 miles (5 600km) a year so I will buy a new car very infrequently.”
As soon as you drive out of the dealership, it starts depreciating. Ideally hang on to your car, using the time between purchases to save the cash that would have gone towards an instalment. If you need to finance the car, pay it off as soon as you can and plan to keep the car long after that loan is paid off.
They save from early on and have a long-term outlook
HNWI build a solid habit of saving and have a long term outlook, which includes protecting their wealth for future generations. A disciplined savings approach is the best financial tool available to you and has a significant impact on your long-term financial security. As a general rule of thumb, you should save at least 20% of your income each month, which goes toward your savings plans, emergency fund, retirement and investments.
They plan… and seek investment advice
They have organised investment plans and allocate time and energy to their plans in order to make well informed decisions. “Invest in what you know and nothing more,” says Buffett. To take it to the next level and make your money work for you, it’s best to seek professional financial advice. In addition to helping you build your portfolio, a good financial advisor will maintain and strengthen that portfolio based on your changing needs and objectives, your risk profile and their understanding of jurisdictional and tax implications.
They don’t subsidise their dependants’ lifestyles
Those who have grown up with parents who did not give them wads of money, tend to be more discerning when it comes to handing out cash, choosing that they rather work hard to make their own way. If children are also cognisant of living a frugal lifestyle and accumulating wealth, it allows their parents to accumulate more and be better off later on. Serial entrepreneur Richard Branson, who grew up in a middle-class family, believes luxury isn’t about money. “If we’re talking about personal luxuries – and the luxury of being our own boss – the biggest reward is the amount of time one can find for family and friends.”
They don’t procrastinate
“So often we hear the words ‘I just don’t know where to start’,” says Mike Fannin, Senior Wealth Specialist at Carrick. “Most people think it’s such a big hill to climb that they just don’t start at all. Stop putting it off. It all starts with saving and the best time to start, quite simply, is now.”