12 habits of the wealthy that can help you to improve your wealth

Warren Buffett is the fourth-wealthiest man on the planet. If you do an online search to find out the secrets of his success, you’ll encounter dozens of well-known quotes:

• “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes”
• “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”
• “Price is what you pay. Value is what you get”

It’s all very well reading pearls of wisdom from a man whose current wealth is estimated at almost $80 billion. But how can you incorporate the habits and mentality of the wealthy and successfully introduce them into your daily life?

The truth is there are lessons you can learn from the wealthy, and small things you can do to improve your financial situation. Here are some tips.

1. Buy wisely

When you buy anything with a big price tag – a car, a house and so on – think like the wealthy and choose something that will hold its value or, even better, appreciate.

For example, buying a used car means it will already have lost much of its value. Buy a home that will appreciate, and make improvements that add to its overall value rather than to suit your personal taste.

2. Make sure you understand what you’re investing in

If we borrow a quote from Warren Buffett for a minute: “Risk comes from not knowing what you are doing.”

If you don’t understand an investment, it’s difficult for you to assess whether it’s successful, and how you should manage it within your overall portfolio. While unusual investments might seem attractive, it could be a poor decision if you don’t understand what to do with them.

Working with a professional can help (more of this in a moment!)

3. Look after your credit score

Wealthy people make sure they protect their credit rating. If you look after yours, you will benefit from lower interest rates on things like mortgages, credit cards and loans.

4. Create multiple sources of income

Wealthy retirees, in particular, make sure their income comes from a range of sources. These might include:

• Employed income – perhaps from a part-time job or small business
• State Pension
• Private pension provision – either through a personal pension or employer’s pension
• Rental income from property
• Investment income.

Creating multiple sources of income gives you flexibility and can have significant tax benefits.

5. Set and work towards goals

As a financial planner, it won’t surprise you to learn that I believe in the power of having a plan in place.

This is a habit shared by wealthy people – they don’t hope for the best, they plan and work towards their financial goals. Putting a plan in place will help you get to where you want to be.

6. Don’t let your emotions get in the way

Research has found that stress and worry can negatively affect your ability to make sound financial decisions.

From loss aversion to confirmation bias, there are many theories that suggest making decisions based on emotion can damage your long-term goals. So, it’s important to be patient, avoid knee-jerk decisions, and try and make choices when you are free of worry or stress.

Again, working with a financial planner can help. Your planner can provide useful guidance and counselling when you’re thinking of making changes.

7. Protect your finances

As your earnings, wealth, and net worth increases, so should your insurance. This might mean:

• Retaining an emergency fund to deal with short-term issues
• Ensuring you have the right life insurance, Critical Illness cover, Income Protection, and business protection in place
• Buying good quality, comprehensive insurance that will protect you.

You need to be sure that you have adequately protected your wealth, as you can never be sure what’s around the next corner.

8. Be careful

Wealthy people take care not to become a target for scammers, and it’s a great lesson to learn.

It’s important to remember that, as you become wealthy, it’s more likely that fraudsters will try and scam you. So, ask all the right questions, take your time, and be careful to avoid getting caught up in a con.

9. Live well beneath your means

2020 research by AJ Bell revealed that one in five workers had no emergency savings before the coronavirus lockdown.

One of the easiest paths to generating wealth is to spend less than you earn and use the rest to invest in something that will generate a return.

A good place to start is to pay yourself first. Set up a direct debit into your savings or investments on payday, rather than trying to save whatever you have left at the end of the month.

10. Don’t be wasteful

A habit wealthy people share is that if you aren’t using something, stop paying for it. That might be a gym membership, magazine subscription, or streaming service.

If you check your bank statements regularly, you’ll better understand where your money goes, and what ‘waste’ you can cut.

Also, adopt the ’24 hour’ rule when online shopping. Pop something in your basket, then wait 24 hours before completing your purchase. If you still want to buy the item then go ahead, but you’ll be astounded how many purchases you decide you don’t need when you’ve slept on it!

11. Plan for your legacy

It’s important to ensure that your money has a purpose. Whether you’re planning to leave your money to your children, grandchildren, or to a favourite organisation, it’s important to ensure your wealth is looked after when you’re not around.

Set up trusts so your children don’t frivolously spend your life’s savings or set specific terms for how your money should be used. This ensures your money works hard for you, even after you’ve passed away.

To quote Buffett again (a man who intends to give away 99% of his wealth to charity): “I believe in giving my kids enough so they can do anything, but not so much that they can do nothing.”

12. Surround yourself with experts

Wealthy people rarely do their own Self-Assessment tax return, and they aren’t usually DIY investors.

They understand where their strengths lie and leave other matters such as tax, pensions and investments to professionals who can add value.

To this effect, if you’d like to find out how I can help you to develop great habits and grow your wealth, please give me a call on 07769 156 250.

 

Foster Denovo Limited is authorised and regulated by the Financial Conduct Authority.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.