I’m reading the book The Millionaire Next Door and have really been challenged by the wealth principles shared by thousands of millionaires. The first part of the book made note of the importance of creating wealth and having a strong defensive position to maintain that wealth. While some would think that becoming a millionaire falls heavily on a great offensive position (i.e. high paying job, risky investments, inheritance), the truth is that having a strong defense is a much better approach to sustained wealth.
While some of these strategies may seem basic, they’re still important. (Sometimes the ‘easy’ stuff is the stuff we put off the most!)
Plan Ahead for the Unexpected
If you haven’t already set up a baby emergency fund of $1,000 – start ASAP. Having that first grand will help as you start to focus your efforts on building your wealth with other investment tools. You never know what kinds of emergencies will come, so having a thousand or two in a liquid emergency fund will help you to keep focused as you save.
Set and Follow a Budget
Have you been faithful to a budget? Most millionaires would answer yes to this question. Don’t fool yourself. No matter what your income/expenses are, you need to know how much you’re spending each month. The discipline of keeping a budget is an important defensive strategy for building wealth.
If you’re having a difficult time controlling your spending, you’ll struggle in the race to build wealth. Whether you’re using online tools like mint.com, a spiral notebook, or plain old envelopes, you need to watch where your money is going. One of the best ways to build your wealth is to carefully manage those expenditures, so keep tracking your way to financial freedom.
Create A Scarcity of Funds
You can learn to live on less if you force yourself to SEE less. To build your wealth faster than you could imagine, try to pay yourself 10-15% first before your paycheck ever hits your bank. This could be through your retirement plan or by shifting a portion directly to savings each month.
Set daily, weekly, monthly, annual, and lifetime goals.
Have you ever set a saving goal for a vacation, car, home improvements? If so, then you’re on the right track! Just don’t stop there! See what else you can challenge yourself to plan for. Create a goal for dollars saved with coupons each week, days you brought your lunch to work in the week, dollars saved in the month by decreasing miles driven…you can set goals in a lot of areas if you put some thought in it!
Ignore the Joneses
Here’s the kicker. It’s a tough one, and it happens to people who don’t even realize it. We are constantly being exposed to advertisements that tell us to get the next best _____(fill in the blank). There’s pressure from our coworkers who wear new clothes each month, friends who buy a bigger home every few years, and family members who have to get the newest car. Does it ever end? Finding contentment in what you have is one of the keys to building wealth, and is the strongest wealth defense weapon in my opinion.
What ways can you think of that are great defenses to building wealth? Are you actively doing any of the ones listed above?