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Money 103: Setting Goals & Budgeting
Most millionaires fit a specific profile
- The perceived (and false) demographic of a typical millionaire:
- Late 20’s to mid 30’s without children
- If any children, the adult children are heavily dependent on parental support
- Makes a very high income from a professional trade or art
- Works 60+ hours a week or less than 30
- Later-generation affluent, usually as an heir
- Drives the newest cars and has many expensive hobbies
- Late 20’s to mid 30’s without children
- The demographic of a millionaire, according to statistics:
- In late 50’s and married with three children
- Adult children are economically self-sufficient
- Self-employed in a practical business that supplies needs for people
- Typically not retired
- Works 45-55 hours a week
- Skillful at targeting opportunities in a market
- Fairly well-educated, usually with a college degree
- First-generation affluent
- Allocates time, energy and money efficiently in ways that are effective in building wealth
- Has a lot of value, but built slowly over time
- Invests about 20% of income
- Median household income of $131,000
- Average net worth of 3.7 million
- Owns a home worth approximately $350,000
- Lives well below their means
- Drives older-model automobile and buys rather than leases
- Attended public schools, but likely to send children to private school
- Still clips coupons and looks for discounts
- They live in a way that doesn’t show their wealth
- In late 50’s and married with three children
Be focused
- In some ways, the amount of money you have is a direct measurement of how much value you have added to others’ lives
- There is a direct tie between being passionate and being financially successful
- This passion will show itself in lifestyle choices, which is necessary to succeed
- If you have a burning desire to accomplish, you’ll want to make big sacrifices
- This has to be a decisive and intentional priority or it will not happen, both as a consumer and as an investor
- Say “no” to your present self and “yes” to your future self
- Stick to your standards or the planning and budgeting was a waste of time
- Don’t skip budgeting and don’t dismiss the numbers you’ve set for yourself
Be optimistic
- “Get rich quick” is definitely possible, but it’s extremely difficult
- You have to believe that you can attain your goals and that things will work out in the end
- You need to be a positive and charming person or you will repel the most important people that can help you attain your financial goals
- The long-term gain must be seen as worth the short-term pain
- Prayer does work, and God does listen
- Sales and windfalls can miraculously happen
- Catastrophes or hardships can be avoided by some improbable circumstance
Be realistic
- You need to be honest with yourself about your fears and beliefs about money
- You are the means to acquire your wealth, not anyone else
- Avoid overconfidence about vague financial plans or major decisions that have not been researched
- If your health deteriorates as a result of your money habits, you will not be able to enjoy the results of your frugal lifestyle
- Small numbers don’t make millionaires, especially when saving pennies can sabotage opportunities
Be tenacious
- Learn to hate debt, hate instant gratification, love saving money, love investing and love giving money away
- Building wealth is a marathon, not a sprint, and it takes a lot of persistence to get where you need to go financially
- Wealth is not an event, it is a process
- Spend less time dreaming about the future and more time working towards it
- Good money management can only come from learning to be confident and fearless about decisions you make
- You have to go on the offensive to acquire wealth, not simply be defensive about risks
Fight against materialism
- Materialism is a lousy measurement of success
- The more content and happy you are, the easier it is to save money
- Gratitude has been scientifically linked to better spending habits
- Happiness is a choice, not a financial decision
- Become a producer instead of simply a consumer
- Learn to live below your means and how to be frugal
- Avoid “small purchases” or things you feel you “deserve”
- Look at a small recurring expense based on how it will play out in 10 or 20 years instead of moment-by-moment
- If you have to think about whether you can afford it, you can’t
- Your frugality should point to trying to expand your means by investing into something that will profit
- When handled properly, money yields money
- Be ready for high-risk investing, since the rich only use interest returns for income and more investing and not for attaining wealth
Fight against peer pressure
- Stop following “conventional” wisdom about wealth
- Conventional people aren’t wealthy, so their wealth tips aren’t any good
- It is easy to be distracted by your friends’ or family’s lifestyles, especially when it involves something fun
- There is no genuine way to compare your lifestyle to another’s, but it is easy to think there is
- You need to be committed to your goals, regardless of what others think
- It is easy to be overwhelmed if you care a lot about appearances
- Have pre-planned responses to what others will say when they see your lifestyle
- Your drastic lifestyle changes may involve your friends making fun of you
Be flexible
- If you are not open-minded, you will miss out on many opportunities
- You must be willing to change from being a consumer to being a producer
- Always be on the lookout for new ways to learn and apply what you’ve learned
Be disciplined
- Maintain your habits until they become automatic impulses
- Live by guidelines instead of by rigid rules, since you are still human
- Work hard, both in your career and in your spending habits
- High income, however, is not high net worth, which is what actually measures wealth
- Avoid the trap of serving your lifestyle:
- An active job creates income
- That income inspires a lifestyle
- The lifestyle creates financial obligations
- The obligations make the active job necessary
- Get a higher-paying job and repeat
- Managing money is managing life, and therefore investing in your own development is one of the best investments you can make
