7 Financial Habits That Will Make You Rich

“Success does not come from what you do occasionally, but what you do consistently.”

The above quote sums up the secret of success whether it is personal, professional or financial aspect of life. Success is vital to be free and happy. It gives us a sense of achievement and makes us feel proud about ourselves. As the quote above says, success is not a one time gig, nor a trick or a hack that can be learnt and mastered in a day or two. It is something that has to be done daily and consistently, everyday with persistence no matter what.

Millionaires and billionaires around the world achieve financial success not because they are blessed or privileged in some way, but because they follow financial habits everyday in their lives that help them in achieving their goals. Let us look at those small habits which, if practised in your daily life will help you achieve financial freedom. ?

The first step of creating good financial habits is to know where you want to be. This gives you an idea of the actions you need to take to reach your goals. If you find setting big goals harder to imagine, start with smaller and simpler ones.The goals could be as small as setting some amount of money aside at the end of the month. As long as you are setting goals and achieving them, slowly your financial condition will start improving. When you achieve smaller goals, they may not seem to be making a big difference in your life, but it is not the goal but the habit of setting goals itself means that you are moving towards taking control of your financial future.

“Do not save what is left after spending, spend what is left after saving” -Warren Buffett

The above quote of Warren Buffett is not just preached but also practiced religiously by Warren Buffett. Despite being the third richest person in the world, he still lives in a modest 5 bedroom house which he bought in 1951.

There are some strong reasons why you should save before spending. First, Saving gives you financial control. By saving more and spending less, you can significantly reduce the likelihood of nasty surprises, such as an emergency expenditure which cannot be avoided. Second, almost all of us invest the money saved in some or the other way, from putting money in a bank account to investing in a mutual fund. By choosing to invest instead of spending, you make money work for you, which helps you reach your financial goals faster and in an easier way.

Some of you might argue that you dont make enough money to save, and whatever you earn, is spent in making the ends meet. If you need money to save but cannot because of whatever you make is insufficient, you must find another source of income. Most of the successful entrepreneurs and businessmen have multiple sources of income. In your case it could be an additional job, online content creation that can be monetized, anything that pays you money for the work done will add to the savings you want to make. What works for you is completely up to you, and you have to keep exploring to find what clicks. ???

Warren Buffett started investing in stocks when he was just 11 years old. He often says in his interviews that starting saving and investing early in life was one of the key factors behind his tremendous success. Just like anything in life, starting to invest early has many advantages. Here are the reasons why you should start investing early in life:

You can take bigger risks:

When you begin investing early, you have ample time in your hand. This allows you to invest in high risk asset because if you lose money in the process, you will have ample time to recover from it. Those who start investing late in their life do not have the luxury to experiment with high risk high return investments.

Power of compounding works in your favour:

Your investments grow at a compounding rate over long period of time. When you start investing early, the power of compounding works in your favour and longer you stay invested, bette will be your return on investment. Let us understand this with the help of a simple example:

Two friends Raja and Ravi start their jobs at the same age. Both of them save and invest the same amount regularly in stock market. The only difference is, while Raja starts saving and investing regularly from 30 years of age, Ravi on the other hand spends all the money he earns, and does not start investing till the age of 40. Assuming both of them retire at the age of 60, since Rajaj was an early starter, he has 30 years of time to grow his investment before retirement while Ravi has only 20 years left.

Keeping all the other factors same (such as amount invested every month, return on investment etc), look how much difference time can make in the returns you get. After retirement Raja will get an amount four times the amount Ravi will get post retirement, just because of the time Raja gave to his investments. That is the power of compounding.

Delaying gratification is one of the most useful and popular ways of saving money, used by billionaires around the world. Delaying gratification is the process in which you pause and think about logical and rational reasons before making a purchase. For example if you find latest gadget in a shop, there is an obvious impulse to buy it, but before you pull out your credit card just pause and ask yourself these questions. Do you really need that fancy gadget? What additional value it brings to your life? Will you be okay even without buying it? What if I invest the same amount instead of buying this? Be honest with yourself and evaluate your purchase against impact it will have on your future.

Even rich people practice delayed gratification and frugality. People do not become rich just because they make more money than an average person, but they also save more money by practicing delayed gratification. Mark Zuckerberg, owner of Facebook, does not own a fancy car, and has been driving the same car for the past 12 years. Ikea founder, Ingvar Kamprad buys second hand clothes and gets haircut in poorer countries as exchange rate are more affordable. Both the entrepreneurs are billionaires and can easily afford fanciest cars and luxury spa treatment, but they don’t as they prioritize saving over splurging.

With ever rising access to easy credit, nothing seems unaffordable. Economies around the world measure their progress with how much the people of the country are consuming. Higher consumption is a sign of progressive economy and better lifestyle. Banks on the other hand, provide credit card loans at some of the highest interest rates, varying from 20% to 30% per annum.

Since both Governments and banks benefit from consumption, they make all the efforts to make sure people keep consuming for the economic engine to keep running. Then why should you avoid taking debt. Here are the reasons:

When you buy things using debt, it means you cannot afford it, since you do not have sufficient cash to pay for it today, you trade your future earnings for todays instant gratification. Such a situation is the first sign that you should avoid buying such things in the first place.

When you buy something using debt, you actually pay higher price for the product than the MRP. For example, if you buy a product at MRP of Rs. 100 use credit card to buy which incurs an interest of 20%, you actually pay Rs. 120 for the product (MRP + Interest). Debt always makes things expensive.

Here are the benefits of staying out of debt:

No interest incurred:

Since you do not have any debt, you do not have to pay any interest, which means more money in your pocket every month.

Peace of Mind:

Having peace of mind is priceless, instead of worrying about your upcoming credit card bill or the next EMI that is soon due, not having debt makes it easier for you live a comfortable life. Knowing that no one will come knocking at your door to collect money takes a lot of weight off your shoulders.

If you want to succeed in any part of life whether personal or professional, you must improve your skills to stay ahead in the game. The best way to improve your skills and learn new ones is by reading. This is true especially in the field of investing. Knowledge is the greatest asset that pays lifetime dividends, the more you read, your knowledge grows like a compound interest. Successful investors and CEOs dedicate some time of their daily life to reading. Warren Buffett is an avid reader, and spends almost six hours everyday reading annual reports, newspapers and books. When asked what was his biggest secret of investing, he pointed to a bundle of annual reports and said, Read 500 pages everyday, that is how you build up your knowledge like a compound interest. Not just Warren Buffett, Bill Gates, Chairman of Microsoft, reads 60 books every year and strives to keep reading even more.

If you want to be successful in your personal and financial life, reading is one of the best resources that will help you in getting the right guidance and mindset you need to achieve the success you are striving for.

So these were the seven financial habits that will help you become rich, as mentioned earlier, it is not going to happen overnight, you need to be persistent and consistent in your efforts towards achieving greater financial success. The process is painful and time taking but then, in order to enjoy a scenic view of the valley, you have to climb the mountain first.

Do comment below your principles of financial success and what is your view on getting rich?