Your daily habits are the reason you are rich, poor or stuck in the middle-class. They are the reason you live in the house of your dreams or a shack.
Forty percent of all of your daily activities are habits. This means 40% of the time you’re on auto pilot, every day.
Habits save the brain work and conserve brain fuel. There is very little processing power involved with respect to habits. When a habit is formed, you unconsciously engage in a specific behavior.
If you have far more bad habits than good habits, this can be a recipe for disaster. Because habits are automatic, unconscious behaviors, your bad habits put you on an automatic path that can lead to poor health, job struggles, relationship problems, failure or poverty.
I asked 177 self-made millionaires 144 questions over a two-year period and uncovered specific good habits that made it possible for them to lift themselves up out of poverty or the middle-class.
What were some of those habits?
#1 They Choose The Path to Wealth That is Right For Them
One of the most profound discoveries I made in my five-year Rich Habits Study, was the fact that there are four paths to wealth:
- Saver/Investor Path
- Big Company Climber Path
- Virtuoso Path
- Dreamer/Entrepreneur Path
Why is this so revolutionary?
Everyone inherits certain genes from their parents, which helps shape their personality. Also, everyone is raised in different environments – we are all raised in different households, in different neighborhoods, go to different schools, etc. Our unique genes and upbringing help to shape the individuals we become as adults.
For example, some people are outgoing, others shy. Some are risk takers, others risk averse. Some can shoulder great stress, without affecting their health and relationships; others crumble under too much stress.
You see, everyone is different and because everyone is different, their path to accumulating wealth must be in alignment with their particular personality.
A shy, risk averse, anxious individual would find the life of a Dreamer/Entrepreneur or Big Company Climber ill-suited for their personality. Most likely, they would probably hate being in either of those two work environments. Such individuals would be better suited pursuing wealth by following the Saver/Investor or Virtuoso Path. Either path would work best for them, given their personality type.
Likewise, outgoing individuals who love high-risk challenges and seem immune to stress, are perfectly suited for the Big Company Climber Path or the Dreamer/Entrepreneur Path. If these individuals worked in a back-office job, they would likely hate their job.
Because there are four paths to wealth, it is critical for those who seek wealth to understand which path is right for them. If you pick the wrong path, success will be elusive. Most people, unfortunately, choose the wrong path.
#2 They Do Work That They Like or Love
Just how important is it to like or love what you do for a living?
Answer: Very important when it comes to happiness and wealth.
Those who like or love their jobs make more money, accumulate more wealth and are happier than those who don’t like what they do for a living.
When I analyzed the data I gathered in my rich Habits Study, there was a direct correlation between job satisfaction and wealth accumulation. Here’s some of that data:
- 96% of the poor did not like what they did for a living.
- 86% of the rich liked what they did for a living.
- 7% of the rich loved what they did for a living.
What interested me most about the data on the rich, was how much wealth they were able to accumulate and how long it took them to accumulate that wealth:
Rich People Who Liked Their Job
Eighty Six percent of the rich people in my Rich Habits study liked what they did for a living. It’s clear, from my data, that in order to become wealthy you must at least like what you do for a living. Those rich people who at least liked what they did for a living accumulated an average of $3.4 million. It took them thirty two years to accumulate their wealth.
Rich People Who Loved Their Job
Only 7% of the rich people in my study loved what they did for a living. But what shocked me was how important loving what you do for a living is to wealth accumulation. Those rich people who loved what they did for a living accumulated an average of $7.4 million or $4 million more than the wealthy who liked their jobs. It took this group of rich people twelve years to accumulate their wealth, or twenty fewer years than the first group.
#3 They Set Good Goals vs. Bad Goals
You hardly ever hear anyone talk about goals in a negative context. Goals are almost always perceived to be good. But there are goals that add no real value to your life when achieved, yet consume valuable resources. So, how do you know when a goal is good or bad?
Good goals create long-term benefits and long-term happiness when achieved. They allow you to grow as an individual and alter your behavior in a positive way. Good goals get you from point A to point B. Point B being a better place, such as more wealth, a better job, higher income, better school system for your kids, etc.
An example of a good goal would be to lose 20 pounds. Setting a weight loss goal often involves a daily regimen of exercise, healthy eating and a healthy lifestyle. Good health results from exercising and eating right. It may also motivate you to moderate your consumption of alcohol or to quit smoking. When the weight eventually comes off, you enjoy the compliments, feel healthier and all of this creates lasting happiness.
Bad goals create short-term happiness and no long-term benefits when achieved.
An example of a bad goal would be to own a Ferrari. In order to own a Ferrari you must make more money. Making more money will likely involve either working more hours or taking excessive financial risk (i.e. gambling). There’s a cost-benefit to working more – you invest time that you will never recoup. Don’t misunderstand me here, working more to make more money can be a good thing. But where the goal goes south is when you then use that money to buy stuff, like a Ferrari. The happiness you derive from owning more or better stuff will fade over time, since happiness derived from owning things is always short term. You will eventually revert back to your genetic happiness baseline and, after a few weeks, the Ferrari will no deliver the happiness you felt at the beginning. The lost time with the family, however, can never be recouped.
If the goal, instead, was to judiciously invest that extra money you earned into a calculated risk, such as a side business, an investment or a vacation home that would enable you to spend more time with your family, then it transforms the “work more/earn more” goal into a good goal.
The benefits of achieving a goal should create long-term benefits: a stronger business, more time with the family, more personal growth, financial independence, improved health, etc.
When the achievement of a goal does not improve your life for the long-term, it’s a bad goal. Goals pursued to own more stuff or to create some momentary pleasure are bad goals.
Be careful of the goals you pursue. Not all goals are created equal.
#4 They Make Living Below Their Means a Daily Habit
The following Smart Money Habits were instrumental in helping transform the Saver-Investors in my Rich Habits Study into self-made millionaires:
The Bucket System Savings Strategy – Allocating Savings into 3 Buckets:
Bucket #1 = Retirement Savings Bucket – This includes 401(k) plans, IRAs and other retirement plans or retirement-specific products (i.e. annuities).
Bucket #2 = Priorities Bucket – This includes saving for what is most important to you: a wedding, birth of a child, vacation, down payment on a home, child’s education, etc.
Bucket #3 = Unexpected Life Event Bucket – Unexpected events include: job loss, medical emergency, death in the family, etc.
Be Frugal Not Cheap
People often confuse being frugal with being cheap. There’s a huge difference.
Let me give you an example.
Cornelius Vanderbilt, the richest man in the world in the late 1800’s, controlled much of America’s transportation in two sectors – the steamships and the railroads. He was revered for his ability to minimize costs. His attention to financial details was unsurpassed during his reign. For example, when he took over the New York Central Railroad, one of the first things he did was remove all of the brass from all of the trains. This cost him a lot of money in removing all of the brass from his rail cars. People thought he was crazy.
Why did he do it?
Brass needed to be polished every day. Removing the brass meant Vanderbilt no longer needed to pay brass polishers. Eliminating the expense of polishing the brass far and away exceeded the cost of its removal, saving his railroad companies an enormous amount of money in the long run.
Cornelius Vanderbilt was frugal.
Frugal and cheap have nothing in common. Being frugal with your spending means spending your money wisely. Frugal spenders make a habit of buying the highest quality product or service, at the lowest price possible. They focus on quality first and cost later.
Cheap spending means buying the cheapest product or service, with little to no regard for quality. Cheap spending is a Poor Money Habit because you ignore quality and, instead, wind up purchasing cheap, poor quality products or services.
Cheap products break down after just a few years, forcing you to replace those products over and over again.
Cheap services are typically provided by those who are either inexperienced in their field, or who are not very good at what they do. This lack of experience or lack of competence can result in mistakes that cost you money down the road.
The costs of cheap spending are one of those taxes the non-wealthy pay that the wealthy don’t pay.
On its own, being frugal will not make you rich. It is just one piece to the Financial Growth Habits puzzle, and there are many pieces, which I will cover. Frugal Spending will enable you to increase the amount of money you can save. The more you are able to save, the more you’ll have to invest.
Keep Your Spending in Check
In order to invest, you must first save. In order to accumulate savings, you must keep your spending in check. The Saver-Investor self-made millionaires in my Rich Habits Study accumulated their savings by sticking to the following spending guidelines:
- Housing – 25% or Less of Monthly Net Pay – For most, a home or apartment is the most expensive part of the spending budget. When you keep the size of your home or apartment small, it will reduce how much you spend in mortgage interest, rent, real estate taxes, repairs, utilities and insurance. Strive to keep your housing costs below twenty-five percent of your monthly net pay.
- Cars – 5% or Less of Monthly Net Pay – Car expenses include monthly car payment, car insurance, gas, tolls, registration fees, repairs and maintenance.
- Clothing – 5% of Less of Monthly Net Pay – Many Goodwill stores carry high quality clothing. You may have to spend a few extra bucks on tailoring, but it is well worth the additional cost.
- Vacations – 5% or Less of Monthly Net Pay – The Saver-Investor Millionaires in my study did not go on exotic vacations. They took modest, inexpensive vacations. They found bargain vacation deals for their family. Some purchased rental properties in beach towns, skiing area or lakes, and spent their vacations in those homes.
- Entertainment – 10% or Less of Monthly Net Pay – This category includes bars, restaurants, movies, music, books, gifts, etc. Eating out and any prepared food you purchase is part of your entertainment budget.
- Stick to BYOBs – There are many restaurants that do not sell alcohol, beer or wine and allow you to bring your own spirit of choice into their restaurant. Restaurants markup liquor sales by as much as one hundred percent, so BYOBs save you money.
- Bargain Shop – Far too many make spontaneous purchases, paying much more than they otherwise would. That’s a Poor Habit. Shopping for bargains and taking advantage of sales events are smart money habits.
- Use Coupons – Even the wealthy in my Rich Habits Study engaged in this money savings habit. Thirty percent of the rich in my study used coupons to buy food. Why pay more than you have to on groceries or other expenses?
- Never Gamble – Gambling is high-risk speculation. It is a tax on the poor. However, if you like to gamble, this would come out of your Entertainment category of spending.
Getting control of your spending is not an easy task. Once it becomes a daily habit, however, it gets much easier. You will fall into a pattern and a routine that will keep you out of the poor house, enable you to save and put yourself on the path to growing your wealth.
Saving money is a process. Accumulating wealth is a process. It’s all one big process. But if you don’t have a process or you don’t forge Smart Money Habits you’ll never be able to save. It just won’t happen. When you develop good money habits you feel like you are finally in control of your life. It’s empowering.
#5 They Don’t gamble
Seventy seven percent of those who struggle financially play the lottery weekly. ninety four percent of the wealthy do not. Wealthy people do not rely on random good luck for their wealth. They create their own good luck. They are not risk averse by any means. Instead, they take calculated risks that require focus, persistence and patience in order to make their risks pay off.
#6 They Read to Learn Every Day
Reading information that will increase your knowledge for your job or career will make you more valuable to your employer, colleagues, customers or clients. Wealthy people have good reading habits:
- 88% of wealthy individuals read thirty minutes or more every day.
- 63% listen to audio books during their commute.
- 79% read educational, career-related material.
- 55% read self-help books, articles etc.
- 58% read biographies of successful people.
- 94% read current events.
- 51% read history.
- Only 11% read for purely entertainment purposes.
The reason wealthy, successful people read is because they understand that knowledge increases their value to those they serve. By increasing your knowledge, you’ll be able to see more opportunities, which translates into more money. Wealthy, successful people understand that self-improvement reading separates them from their competition.
Only 2% of those struggling financially in life, engage in daily self-improvement reading and, as a result, they are among the first to get fired or downsized.
# 7 They Avoid Time Wasters
Sixty seven percent of wealthy people watch less than an hour of T.V. a day and 63% spend less than an hour a day on the Internet, unless it is job-related. They utilize their free time, instead, engaged in self-improvement, networking, volunteering, working side jobs or side businesses, or pursuing some goal or dream that will lead to financial rewards down the road. Seventy seven percent of those struggling financially spend an hour or more a day watching T.V. and 74% spend an hour or more a day using the Internet for recreation.
#8 They Control Their Words and Emotions
Not every thought needs to come out of your mouth. Not every emotion needs to be expressed. When you say what’s on your mind or express every emotion you have, you risk hurting others and damaging relationships. Sixty nine percent of those who struggle financially have the Poor Habit of saying what’s on their mind and expressing their emotions. Conversely, 94% of wealthy people in my study, filtered the words that came out of their mouths and kept a tight leash on their emotions. They understand that saying what’s on your mind or letting emotions control you can destroy relationships, negatively affect business and cost money.
#9 They Have a Clear Vision of Their Destination
You must Dream-Set before you Goal-Set. Dream-Setting provides you with the destination; Goal-Setting is the transportation system. Dreams represent a vision of some future, ideal state or reality. Dreams are the springboard for goals. You can’t achieve goals that are actually dreams in disguise. Most who set goals, mistake a dream for a goal, and that is why most fail to achieve their goals. For example, making an additional $100,000 a year is a dream, not a goal. Becoming an Olympic athlete is a dream, not a goal. Owning a house on the beach is a dream, not a goal (unless you have the money already).
Dream-Setting is the act of clearly defining a dream and then building goals around each dream. Here’s the Dream-Setting Process:
- Create a Blueprint of Your Ideal Future Life – Pretend it is 10 years from today and you’re writing in your journal. What’s your life like? Where do you live? How much money do you make a year? What amazing job do you have? Paint a picture with words of your future, ideal life. boat you own, the car you drive, the money you’ve accumulated etc.
- Identify Each Dream- Embedded within your above script are specific dreams that you realized. Bullet point each one of those dreams – your beautiful home, your amazing job, how much you make, etc.
- Build Goals Around Each Dream – Each dream may require the accomplishment of several goals. So, one at a time, you pursue each goal. When you achieve all of the goals around your dream, that is when you realize your dream. A goal is only a goal when it is 100% achievable and when it requires that you take some action. Achievability means you have the requisite knowledge or skills to pursue the goal. If you don’t then you must acquire that knowledge or those skills before pursuing the goal.
- Create Daily Goal Habits – In order to automate the achievement of your goals, you must forge daily habits, or actions you take each day, in order to accomplish each goal.
Let’s summarize this Dream-Setting / Goal-Setting process:
- Paint a picture with words of your ideal future life – this is your Blueprint.
- Define each dream that must be realized in order to have your ideal future life.
- Establish specific goals around each one of your wishes or dreams.
- Take daily action on your goals by creating Daily Goal Habits.
Repeat this four-step process for each one of your dreams. Each dream is like a wrung on a ladder. When you realize one dream, you climb the ladder to the next wrung. When you climb all of the wrung’s, you are living the life of your dreams.
#10 They Develop Relationships with Other Success-Minded Individuals
We are only as successful as the people we spend the most time with. Eighty-six percent of wealthy, successful people associate with other success-minded people. Ninety six percent of those struggling financially associate with others struggling financially. If you want to end your financial struggles, you need to change who is inside your inner circle.
Are they Constructive Relationship-types or Destructive Relationship-types? Constructive Relationships have a positive mental outlook on life. They are upbeat, optimistic and enthusiastic people. They lift you up and inspire you to improve and grow. They are influencers and door openers. They will refer you business and introduce you to other influencers.
Destructive Relationship-types have a negative mental outlook on life. they will drag you down. Spend as little time as possible with Destructive Relationships.
#11 They Never Quit on a Dream
Self-made millionaires, especially the Entrepreneurs and Big Company Climbers, are persistent. They never quit on their dreams. They would rather go down with the ship than quit.
Twenty seven percent of the self-made millionaires in my study failed at least once in business. The reason they were in my study was because they picked themselves up and went on to try again. Persistence requires doing certain things every day that move you forward in achieving your goals or life dream. Persistence makes you unstoppable. No obstacle, mistake or momentary failure can stop you from moving forward if you keep at it. These millionaires learned to pivot and change course, growing in the process. Persistence allowed them to learn what didn’t work and continuously experiment until they found what did work. Persistence is the single greatest contributor to manifesting good luck. Those who persist, eventually get lucky. Some unintended consequence emerges, something unexpected and unanticipated almost always happens to those who persist. If you want to be successful in life, you must persist in the face of unrelenting adversity. Successful people are successful because they never quit on their dream!
#12 They Seek Out and Find Success Mentors
The average net liquid wealth of the wealthy people in my study who found a success mentor was $4.3 million. So, finding a mentor in life is like having someone deposit $4 million into your bank account. Ninety three percent of the self-made millionaires in my study, who had a mentor in life, attributed 100% of their wealth to their mentors.
Success Mentors teach you what to do and what not to do. They share with you mistakes to avoid and valuable life lessons. They infect you with their success habits. Finding a success mentor in life is one of the least painful ways to become rich. Success Mentors fast track success. In my research I discovered five types of Success Mentors:
- Parents – Parents are often the only shot any of us have at having a mentor in life. This is why parenting is so important. Parents need to be success mentors to their children. They need to teach their children good daily success habits. If they don’t, it is likely their children will struggle in life.
- Teachers – Good teachers = good mentors. Teachers can reinforce the mentoring children receive at home from their parents, or step in to provide the success mentoring absent at home.
- Career Mentors – For those not fortunate enough to have had parents or teachers who provided success mentoring, finding a mentor at work will virtually guarantee success in life. Find someone at work who you admire, trust and respect and ask them to be your mentor. This person will be at least two or three levels above you, in the pecking order at work.
- Book Mentors – Books can take the place of actual mentors. Sometimes the best source for mentors are found in books, particularly books about successful people. 58% of the self-made millionaires in my study read biographies of other successful people.
- Mentored by the School of Hard Knocks – When you learn success habits through the school of hard knocks, you essentially become your own mentor. You teach yourself what works and what doesn’t work. You learn from your own mistakes and failures. This is the hard path to success because those mistakes and failures carry significant costs in both time and money. But this is also the most powerful type of mentoring you can get because the lessons you learn are infused with intense emotion and, thus, never forgotten.
#13 They Create Multiple Streams of Income
Self-made millionaires do not rely on one singular source of income. They have multiple streams of income. Three seemed to be the magic number in my study. Sixty five percent had three or more streams of income that they created over time. Diversifying your sources of income allows you to weather the economic downturns that always occur in life. These downturns are not as severe to the rich as they are to the poor.
The poor, conversely, put “one pole in one pond” and when that single income stream is negatively impacted in some way, the poor suffer financially. Conversely, the rich have “several poles in several ponds” and are able to draw income from other sources when one source is temporarily impaired. Some of the additional streams might include: real estate rentals (each rental unit = a stream of income), REITs (each one = a stream of income), Tenants-in-common real estate investments (each one = a stream of income), triple net leases, stock market investments, annuities (each one = a stream of income), seasonal real estate rentals (beach rentals, ski rentals, lakefront rentals), private equity investments, part ownership in side businesses (each one = a stream of income), financing investments, ancillary products or services and royalties (patents, books, oil, timber, etc.).
#14 They Are Open-Minded and Positive
Everyone inherits from their parents, environment and upbringing certain beliefs that influence your behavior, thinking and the choices you make in life. Our daily habits are directly associated with our beliefs. If we have bad daily habits, it is because we have limiting beliefs driving those bad habits. If we have good daily habits it is because we have strong positive beliefs driving those good habits. When beliefs close your mind to new ideas, new knowledge and new ways of thinking, they inhibit your ability to grow as an individual. Keeping an open mind and having a positive optimistic outlook fosters the creation of growth habits that are a prerequisite for success.
#15 They Don’t Give Into Their Fears and Doubts
Fear and doubt sabotages your life. Everyone experiences fear and doubt, but those who give into their fears and doubts allow negative emotions to control their behavior. Any change, even positive changes like marriage or a promotion, can prompt feelings of fear and allow doubt to take root. Wealthy people have conditioned their minds to overcome their fears and doubts, while those who struggle financially give in to their fears and doubts.
#16 They Create Their Own Good Luck
Only 8% of the self-made millionaires in my study said they accumulated their wealth because of random good luck. Ninety two percent said random good luck had nothing at all to do with their wealth. While this 92% acknowledged that luck was a factor in the accumulation of their wealth it was a different type of luck that they called “Opportunity Good Luck”. This is a unique type of luck that is the byproduct of their hard work, persistence and good habits. This 92% never quit. They never gave up. Even when they failed, and 27% failed at least once in business, they picked themselves up, figured out what went wrong and tried again. Good habits and persistence create good luck.
I discovered many more habits that transformed ordinary individuals into self-made millionaires. To date, I have tracked over 360 such habits. These sixteen are among the most powerful and will give you a solid foundation for transforming your life from ordinary to extraordinary.
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