Since the year 2004, I have dedicated myself to exploring strategies for attaining wealth while evading poverty. My investigations have led to two pivotal insights:
To begin with, your everyday practices significantly influence your financial situation. Some of these practices elevate you and foster wealth accumulation, while others can hinder your progress and lead to financial hardship.
Secondly, there are four distinct routes to achieving wealth: the Saver-Investor Path, the Big Company Climber Path, the Virtuoso Path, and the Entrepreneur Path.
By selecting the path that aligns with your strengths and implementing what I refer to as “Rich Habits” to support you along the way, the journey to wealth becomes almost effortless. On the other hand, if you opt for a path that doesn’t suit you, attaining wealth can feel nearly impossible.
The Saver-Investor Path stands out as the most popular route to financial success, having produced more millionaires than any other path. I have devoted considerable time to understanding how the Saver-Investor Path functions for my latest publication, Effort-Less Wealth. Its appeal lies in its accessibility; it doesn’t require specialized skills or advanced education and asks for minimal risk, extensive working hours, or withdrawal from social interactions.
All you need are a few essential elements: 1) a reasonable middle-class income—saving is challenging when you’re merely getting by; 2) Discipline; 3) Consistency; and 4) Time—the average Saver-Investor in my Rich Habits analysis dedicated about 32 years to the process, resulting in over $3.2 million in savings.
These characteristics define a Saver-Investor millionaire, but they are merely the foundation. To maximize those traits, you’ll need to develop the eight common habits that I found most prevalent during my research.
1. Practice frugality, not cheapness.
Frugality involves making wise spending choices. Frugal individuals consistently seek to obtain the best quality products or services at the lowest possible price. Their primary focus is on quality before considering cost.
In contrast, spending cheaply signifies going for the least expensive products or services without giving thought to their quality. Cheap items often fail after a brief period, compelling you to replace them again and again. Cheap services are frequently rendered by those lacking experience or expertise, leading to mistakes that could cost you more in the long run.
2. Monitor your spending habits.
The Saver-Investor self-made millionaires in my Rich Habits research accumulated their wealth by adhering to specific spending guidelines for their monthly net income:
- Housing – capped at 25 percent or lower. Note: Wealthy individuals typically prefer to buy rather than rent.
- Automobiles – limited to 5 percent or lower. This includes all associated costs such as monthly payments, insurance, fuel, fees, and maintenance.
- Apparel – restricted to 5 percent or lower. Refer to the frugality habit here: invest in quality over quantity.
- Getaways – kept to 5 percent or lower. The Saver-Investor millionaires in my study favored modest and affordable vacations, often taking advantage of travel deals.
- Leisure – capped at 10 percent or lower. This category encompasses expenses for bars, restaurants, entertainment, books, gifts, and more.
Gaining control over your expenditures is no small feat and can challenge your sense of self-worth—many affluent individuals aren’t shy about bargain hunting or using coupons. However, once strategic spending becomes a daily routine, it becomes easier.
3. Build a network of fellow Saver-Investors.
In my Rich Habits study, Saver-Investors actively cultivated friendships with those who shared a savings-oriented mindset. Why is this crucial? Habits can spread like a contagion through your social circle. If too many spenders are in your close quarters, you will inevitably catch their spending habits and struggle to save.
4. Distinguish between needs and wants.
Individuals who place too much value on their wants often succumb to instant gratification, sidelining saving to indulge in desires like high-definition TVs, luxurious vacations, flashy cars, larger homes, and extravagant jewelry.
These Want-Spenders frequently accumulate debt to support their lifestyle. They lack discipline with their finances and inadvertently create their own poverty. Society’s consumerism and advertising have conditioned them to believe that overspending is perfectly acceptable.
As Want-Spenders age and can no longer work, they find themselves living in severe financial hardship, reliant on others for support.
5. Steer clear of emotional spending.
During moments of excessive optimism regarding future income, it’s easy to fall into the trap of spending either money you already possess or anticipating future earnings through debt.
On the flip side, when feeling down, emotional purchases might seem like a quick solution, briefly alleviating feelings of sadness. The secret is staying vigilant about your emotions and seeking healthier coping mechanisms.
6. Avoid impulsive expenditures.
Most people possess about three hours of willpower energy, which peaks after a restful night’s sleep. With high willpower, your brain’s prefrontal cortex governs your decision-making, leading to sound choices. Conversely, low willpower can undermine your discipline regarding spending.
This is why grocery stores place enticing products near checkout areas; they hope you will make impulsive purchases in your moment of weakness, whether it’s a soda, chips, or a gossip magazine.
The solution? Do your shopping shortly after waking up, after resting, or following a light meal. These activities help restore your willpower reserves.
7. Prevent lifestyle inflation.
If you adjust your spending to mirror your income increases, you fall prey to lifestyle inflation. It explains why so many individuals live paycheck to paycheck even as their income rises.
Lifestyle creep often creeps in gradually over the years, often without your awareness.
The key is to establish a fixed savings rate, consistently setting aside a predetermined percentage of your income, regardless of how much you earn. This will act as a safeguard against overspending and keep you focused on wealth accumulation.
8. Do not amplify your lifestyle unnecessarily.
When Connor McGregor faced off against Floyd Mayweather in 2017, he secured a $30 million guarantee for the fight. With that money, he bought a $17 million yacht. Because he didn’t retain enough of his earnings to cover income taxes, he had to tap into his existing wealth to settle his obligations—talk about a shocking revelation.
Exaggerating your lifestyle stems from an overly optimistic view of a sudden surge in income or assets, such as a hefty bonus, substantial salary increase, inheritance, or other financial windfalls.
The solution? Maintain the same house, same spouse, same car. Resist the urge to elevate your standard of living when your financial situation improves significantly. Stick to your financial plan.
Building wealth as a Saver-Investor is not a single event but an ongoing process. By incorporating habits conducive to financial growth, you place your wealth accumulation on autopilot.
