Lots of people have financial goals, of which becoming a millionaire is one of the most common. If you are an avid BossBabe reader, then you probably share this aspiration. For many, becoming a millionaire is more about the financial freedom of not having to be stuck in a specific job, for example, than it is about the actual dollar number. This article provides a glimpse into what millionaires do differently. By studying their habits, we can learn how to modify our own behavior and make decisions that move us closer to millionaire status. Let’s begin.
Here are three habits that demonstrate what millionaires do differently:
Millionaires understand net worth (and know what theirs is).
Net worth is a simple mathematical calculation that takes the total value of a person’s assets (investments, savings, and valuable possessions such as houses and cars) and subtracts their liabilities (debts) to reach a dollar amount. Simply put, your net worth is what you own minus what you owe. For example, if you own a car paid in full that is worth $30,000, have $10,000 in a savings account, and owe $10,000 between your credit cards and your student loan, then your net worth is $30,000.
Everyone’s net worth fluctuates because the value of their assets and the balances of their liabilities change regularly. Millionaires understand this, so they check their net worth on a routine basis, usually at least once per quarter. They actively work toward growing their net worth by investing regularly and not owing any money, even on their homes.
There are a lot of misconceptions surrounding the topic of net worth. For clarification purposes, being a millionaire does not mean you make or have made a million dollars. The calculation focuses solely on ownership not income. However, millionaires often strive to increase their income, so they can put more money toward investing.
The first step to becoming a millionaire is to calculate your net worth. What is the total value of your assets? How much do you owe in liabilities? Take this snapshot to help you determine the next step toward this goal.
Millionaires budget their money.
The word “budget” has a negative connotation to some. People often associate budgeting with being broke and not having enough money to do what they want. This view is actually contrary to the truth, since the majority of millionaires pay attention to every dollar, whereas most people who struggle with money do not have a plan for their finances.
That’s exactly what a budget is—a plan for your money. Preparing a budget before you get paid is a great way to ensure your money goes toward what you truly want. Personal development coach, author, and motivational speaker John Maxwell said it best: “A budget is telling your money where to go, rather than wondering where it went.”
Now that you have calculated your net worth, the next step is to write down your budget. List your income at the top and subtract out your necessities, such as food and gas. Also, think back to your assets and liabilities. Are you ready to start investing, or invest more, to increase the value of your assets? If so, include a line item for investing and research a credible advisor in your area. Are high debts bringing your net worth down and taking a large chunk of your income? Then prioritize paying off debt to free up more cash. Budgeting is probably the biggest factor of what millionaires do differently than other people.
Millionaires don’t “look” like millionaires.
In movies and on TV, millionaires are often portrayed as flashy, extravagant, and big spenders. In reality, millionaires live significantly below their means. This habit enables them to increase their cash flow, the money left over after all their bills are paid. The only two ways to grow your cash flow are to make more money and decrease your payments going out. A simple equation to remember is: Inflow – outflow = cash flow.
The Millionaire Next Door is a comprehensive book that reports the findings of a study conducted on over 1,000 millionaires in the mid-90’s. One of the most prominent trends that contributed toward their wealth was their frugal lifestyle. Rather than keeping up with the Joneses, the study found most millionaires “believe that financial independence is more important than displaying high social status”. For example, the study found that over 80% of the millionaires purchased their cars outright, rather than financing or leasing.
With your net worth and budget in mind, think about your cash flow. How much money is available to save and invest after you pay your expenses? Are you spending lavishly to “look” well off? What are some ways you can increase your income? What costs can you reduce to free up money? Are you willing to do something drastic, like sell your car to get rid of that monthly payment? Whatever you decide, focus on improving your cash flow in order to increase your assets, decrease your liabilities, and ultimately grow your net worth.
That was just scratching the surface…
These trends just barely scratch the surface of what millionaires do differently. A common thread among all millionaire habits is the concept of being intentional. Detail oriented, disciplined, and diligent, they stay in control of their money through careful planning. (If you need a boost, read this article on goal setting!) Successful people in any area of life are active participants in, not passive recipients of, life’s circumstances.
Here are some fantastic resources for further study on building wealth:
Dave Ramsey’s 7 Baby Steps Toward Financial Peace program: DaveRamsey.com
I personally follow and highly recommend Dave Ramsey’s teachings. He has sold tens of millions of personal finance books and courses worldwide, has the third-largest talk radio station in the U.S., and is the leading authority on becoming debt free and building wealth.
Chris Hogan’s Everyday Millionaires book: ChrisHogan360.com
Chris Hogan’s team has recently completed the largest study of U.S. millionaires ever, with over 10,000 millionaires surveyed. His book is designed to provide insight into what millionaires do differently to build their wealth, as well as give practical tips for us to do the same.
The Millionaire Next Door book: purchase on Amazon
Though 20 years old, the book is filled with timeless insights into how millionaires think and behave differently. We can apply the same principles today to realize similar success.