The Habits of the Rich, Part 2

In Part 1 of our 2 Part series we gave you a look at five habits that wealthy people have that, in most cases, you don’t. In today’s blog were going to, surprise, look at another five habits that they have that you should definitely emulate if you want to become wealthy as well. Enjoy.

One of the first is simply to avoid temptation. Listen, the fact is that it’s almost impossible these days to get away from the never ending pressure to spend money. Television, the neighbors, family, friends and even strangers on the street can make you feel inadequate if you don’t have the same “stuff” that they do. If you want to become wealthy you’re going to have to learn to say no to temptation, and do it often.

Honestly, do you need the newest smart phone, biggest house or most expensive automobile? If you think you do, then you might have more problems than just financial.

Setting financial goals is one of the most important habits that you need to emulate if you want to become wealthy. Whatever it is that you want to achieve, whether it’s to save $1 million, open your own business or purchase a second home as an investment property, setting goals and sticking to them is one of the best ways to do it. In most cases this means actually writing your goals down, checking back on them frequently and involving other people in your goal setting who can keep you on your toes.

Prioritize your financial goals, assigned target dates to have a specific amount of money or a specific task accomplished and display those goals openly somewhere that you can see them easily and check in with them regularly. This amount of accountability will help you to stay on track much more easily.

Another habit that they wealthy embrace is to educate themselves and do it often. Wealthy people spend a lot of time studying financial concepts, stay abreast of financial trends and learn the ins and outs of the financial markets. Whenever they have the opportunity to take advantage of someone or something that will strengthen their understanding, they take it. One of those opportunities comes from the venerable Wall Street Journal. Others include Fortune magazine, CNBC and anything that features the advice of Warren Buffett. One caveat is not to overwhelm yourself with information which, in some cases, can actually paralyze you rather than help you to move forward.

A vital habits that you need in order to become wealthy is to have a diversified portfolio of assets. While the old adage about “putting all your eggs in one basket” is a bit silly (what are you going to do, use five baskets?) what it means in essence is that you shouldn’t put all of your money into only one or two different assets but instead spread it out among several. Purchase mutual funds, bonds, stocks, real estate and maybe even collectibles.

The reason being is that if one of these assets is decimated, for whatever reason, you’ll still have all of the others to rely on and protect your finances.

Finally, although this is an old adage as well, wealthy people spend money to make money. In this case, that means paying a financial professional, like an accountant, financial advisor or estate planner, who has expertise in financial matters and can help you to make the best decisions about where and what to do with your money. You can still do some “DIY” investing on your own, but the objectivity, personalized guidance and expertise that professionals offer, while it may actually cost you a little bit of money, will more than likely allow you to save and/or earn much more money in the long run.

And there you have them. 10 habits that wealthy people have and, if you want to be wealthy as well, you need to embrace. It might not be easy at first but, like any habit, once you get into the “groove” of doing it all the time it will become easier and your financial empire will grow. After all, even Warren Buffett didn’t become a millionaire (excuse us, billionaire) overnight.

The Habits of the Rich, Part 1

Unless you’re part of the 1% of people that are born into wealth, there’s simply no way to become wealthy “by accident”. It takes a lot of planning, dedication and persistence, and it doesn’t happen overnight. Simply put, becoming wealthy requires a long-term vision and the ability to stay dedicated to the “prize” of future financial freedom.

Below are a number of habits that “rich” people do that the rest of us usually don’t.  By the way, when you’re finished here, don’t forget to come back and read Part 2.

The first is that they start building wealth very early. We’ve mentioned this numerous times in the past but it deserves repeating. The power of compound interest means that, the sooner you start saving, the more money your money will earn for you over the years. Contributing to an IRA or 401(k) is one way to take advantage of compound interest and, if your company happens to have a 401(k) matching plan, you should take full advantage of it as early as possible.

Another habit that wealthy people use to build their wealth is to automate their savings. Frankly, the average person doesn’t have the willpower to not spend money that makes it into their hands. By automatically deducting money out of your weekly check and having it deposited into an IRA, 401(k) or other savings account, it doesn’t make it into your hands and thus the risk of spending it is much less.

Wealthy people also make a habit out of maximizing their contributions. Simply put, if you want to be wealthy you need to save money fanatically. One of the best ways to do that is simply to maximize the amount of money that you’re allowed to put into any of your retirement savings plans. We already talked about taking advantage of matching contributions at your work but, even if you don’t have that option, maxing out the amount of contributions you can make to any o9f your other retirement plans is definitely advisable.

One thing wealthy people do is not carry a credit card balance. The reason is that high interest debt on a revolving account (or several of them) is a serious drag on your finances, costs thousands of dollars in interest and unnecessary fees and, simply put, prevents you from saving as much money as you can. Becoming wealthy means completely getting rid of any bad credit habits that you might have, especially the “minimum payment mentality” that many people have today.

Ironically, many wealthy people live like they’re poor. They keep their automobiles for as long as possible, lives in modest homes and don’t spend tons of money on new clothes, gadgets like smart phones and televisions, and entertainment. In other words, wealthy people live well below their means and adopt what is known as a “less is more” mentality. While we’re not saying that you need to be a skinflint, the simple fact is that the less money you spend on unnecessary, frivolous or unneeded items, the more money you’ll have to build your wealth.

That does it for Part 1. The 5 habits above should definitely get you started on your wealth building endeavor but don’t forget to come back and read Part 2 sometime very soon as it contains another five excellent wealth building habits that wealthy people use all the time.

How to find an Angel Investor

Many an entrepreneur has maxed out their own credit cards and borrowed heavily from relatives but, when those funds run out, often they end up turning to so-called “angel investors” to help fund their up and coming businesses.

These aren’t the mythical creatures that you’ve heard about from the movies and religion, but rather human beings who have the ability to invest thousands of dollars into startup businesses, many times as part of a broader network of investors. They are a step or two below venture capitalist simply because, where venture capitalists invest millions of dollars, angel investors only invest thousands.

If you’re keen on finding an angel investor to help you, the advice below from David S. Rose should help. He’s an angel investor whose international platform, Gust, has funded over 90 startups, and his advice is definitely worth looking at. Enjoy.

One of his best tips is simply to make sure that, no matter what the happen to be, you have the ability to execute your plans. As Rose says, the typical angel investor is going to “bet on the jockey, not the horse”. He writes that “We’ll always take a class A entrepreneur with an okay business plan over a great business plan with a not-so-great entrepreneur.”

Another tip is to know your business, and your market, very well. Rose says that before an angel investor will sink any money into a startup, they need to see that the entrepreneur “really understands every single thing about their business — all of the costs that go in to it, all of the competition.” The lesson; know as much about your business, your metrics and your numbers as possible before searching out an angel investor.

Rose’s next tip is to be able to prove to an angel investor that your product or service is something that people will actually pay for. “We want a business that can really make money,” he says. “We look for traction … a company that has done something and has some proof that somebody is willing to write a check [for].”  As far as Rose is concerned, most online advertising supported businesses are no longer able to do this.

When pitching your idea to an angel investor, Rose advises to keep your pitch short and, with your elevator pitch, keep it even shorter. He believes that 15 minutes is the max that your elevator pitch should be 30 seconds or less, and so as brief and concise as possible. As Rose says, “the goal of that pitch is to get a second meeting.”

One last tip that we’ll include today is Rose’s tip to fully understand the financing market. Rose says that, because of advanced technologies, financing a new business is much cheaper today than it was previously. Yes, there are more angel investors and venture capitalists, but there also are many more entrepreneurs seeking their funding help.

Rose writes that “Most angel investors typically invest tens of thousands of dollars.” Adding that “For us to get a meaningful stake in a company requires that the valuation be relatively low. We look for a big return over the long term because it’s very risky.”

In closing, if you’re looking for an angel investor, the sound advice above from David S. Rose should definitely be your starting point.

 

The Top 10 Things Every Consumer Needs to Know about Money

When it comes to financial literacy, Americans have been let down by the school system, a system that leaves them ill-prepared to deal with spending, investing, savings and so forth. If you’re one of those people, the Top 10 things that we go over in this blog are sure to help you. Enjoy.

  1. You MUST earn more than you spend. There’s no way around #1. If you’re not earning more money than you’re spending, you will perpetually be in debt, a situation that is financially untenable.
  2. The earlier you begin to save money, the more money you will save. This sounds much easier to do than it actually is but, by using compound interest to your advantage, and starting as early as possible, you can use your money to make money. This is one of the keys to becoming wealthy.
  3. The higher the risk, the higher the rewards. Yes, keeping your money in a regular savings account is “safe” but, when you do that, you sacrifice the higher returns that you might get from the stock market as well as an IRA or 401(k) plan. A diversified portfolio used for long-term savings is also an excellent idea as, even though it’s risky, the rewards generally offset that risk.
  4. Diversifying your investments is vital to your financial health. Just like “putting all your eggs in one basket” might not be the best idea to handle eggs, putting all of your money into one stock or sector means that, if that sector loses value, you lose money. (And hey, even 2 baskets is better than just 1.)
  5. Be vigilant against scam artists and identity theft. It goes without saying today that you should monitor your financial accounts on a very regular basis to make sure that there’s nothing “fishy” going on that could mean that you’ve been the victim of fraud or identity theft.
  6. Make sure that you have plenty of insurance. Homeowners, renters, health, disability and life insurance come at a cost, no doubt, but the cost to you and your family if you don’t have them and a “worst-case scenario” happens can be devastating financially.
  7. Make your savings automatic. Taking advantage of a program that automatically deducts money from your paycheck and deposits it in your bank account or into a retirement or savings account is one of the best ways to make sure that you save money.
  8. Keep your debt load low. In truth, not all debt is negative as it allows people to buy homes and go to college. On the other hand, using credit cards to purchase everything in sight while you rack up thousands of dollars’ worth of debt is not recommended, for obvious reasons.
  9. Keep track of your credit report and credit score. Not only will this help you to keep your financial habits top of mind, you can also check for errors that may mean you been the victim of identity theft.
  10. Never stop learning. New products, new fees and new ways to save are always being invented by the financial services industry. If you keep up on these changes it will help you to possibly save more money and/or avoid changes that might affect you financially

And there you have them. The Top 10 things that you should know about money. Now, truth be told, we didn’t go into a whole lot of detail or depth. That being said, simply knowing these 10 things can be an excellent foundation for your financial future. Now it’s up to you to go out and do more research.