How to Manage Your Money Like The Wealthy for Individuals and Households | Millionaire Mindset
- Mr. Organic
- Jun 18, 2019
- 6 min read
Updated: Jun 22, 2019
Your processes for money management are imperative to successful wealth building. Below is an overview of how to start building your wealth.
Self-Employed vs. Employee
If you are a self-employed individual, small business owner, realtor, contractor, programmer, financial advisory, or work for yourself in any capacity. This article is for Employees, and I will be following it up with one specifically for the self-employed.
I felt it was important to break it down into Employees and Self-Employed business owners separately because although there is much overlap, there are specifically different planning processes that must take place. When I mention employees, this can include any employed individual, couple, or household unit that does not have any business interest, and is typically being paid salary or hourly.
Managing Your Money Like The Wealthy: Employees
In regards to building proper financial habits there is a lot that goes on in creating the Millionaire Mindset.
For the purposes of this text, I will stick closely to functional steps that are geared to first secure you (keep you from moving backwards), and then from there attain your set goals (move you forward).
Have you Internalized What You Really Want?
If you have not yet planned or are having trouble internalizing your life goals please see my previous article on goal creation and processes to internalize your goals into your subconscious.
Once your goals are set, you now must create an environment where your financial habits are forced to line up with your vision of the future.
How Badly Do You Want It?
If you are unsuccessful at creating the habitat for proper money spending habits, a long term mentality, and fail to create an understanding of the impact that every decision makes on your vision, then you may find this very difficult.
On the other hand if you're ready to fully commit yourself to creating a happy healthier life your financial habits are going play a big role, and I'm here to help!
Dave Ramsey's "Baby Steps"
These steps are used because they are an easy and logical way for anyone to get financially secure. Dave includes 7 steps to building wealth. I would agree that this is a great way to start your money management, but you also must keep in mind none of this advice is specialized to your specific scenario.
Before reading the 7 steps there are a few important things to note. Dave Ramsey is there to please the masses through podcast and book sells (his audience is aimed at the average income earner of about $50,000/year because that is where the masses are located) which is not bad, but once you've achieved steps 1-3 it is time to invite a trusted financial adviser into help. I strongly suggest finding a trusted financial adviser for steps 4-7.
If you are a high income earning American, specified planning may be necessary if you want efficient planning ($100,000/year+). Dave is also a big believer in having a financial adviser help guide you because he too understands general advice can only get you so far.
First: As stated above, create goals to internalize why going through these steps are imperative to your success.
Step 1: $1,000 in an emergency fund. You can start this by creating a savings account and having auto withdraws into the saving on your pay day. Or safeguard it yourself in cash. The main goal in step one is to create a small amount of liquidity to ensure you don't move backward while working on step 2.
Step 2: Pay off all Debt except home. Dave talks about creating a mindset around the debt snowball. This is effectively paying off the smallest balances first to give yourself boosts of confidence that things are moving forward. If this works for you then great! On the other hand if you are analytic and patient then you understand the highest interest are actually hurting the most, and those should be the first targeted. This is also referred to as the debt avalanche. This method is likely to pay off your debt quicker if you stay diligent.
Step 3: Save 3-6 months of living expenses for a fully funded emergency fund. As stated in step one, liquidity is imperative to success because life happens and not every detail can be planned for. You can plan your 3-6 months to include discretionary income (eating out, enjoyment) or to only include your fixed bills (utilities, rent, etc.). If you don't have a budget check out my article, How the Wealthy Budget and Why You Should Too. Keep in mind if you run into job loss/transition or have an emergency you will need to be willing to scale back spending if discretionary income is not planned for.
Step 4: Invest 15% of household income into retirement. Like I stated above I strongly suggest finding a trusted financial adviser for steps 4-7 or taking the time to research and study yourself. Invest 15% sounds simple enough right.. Wrong! There are thousands of questions that must be answered to see if 15% is right for you. What retirement vehicle should you use (pre or post tax)? What's your age? How much return are you expecting on your money? What percentage of your income do you want in retirement? How much income do you want guaranteed? Is this percentage after or before tax? What if you are disabled or have premature death? What is your SS or pension benefits? What are your projected health care costs? The list goes on. The point I'm trying to make here is that professionals have a job for a reason, and it is there obligation to guide you down the most efficient path!
Step 5: Save for your children's college fund. College may not be a concern of yours, but in any case you'll want to have a plan for saving for any pre-retirement goals. Keep in mind retirement vehicles often have an age restriction of 59.5 years old. If you are planning to make purchases before 59.5 (or wish to retire before then) it's imperative you review pre-reitrment investing options with your adviser.
Step 6: Pay off Home. This may or may not be the right decision. Interest rates are at an all time low, and the market has been performing for a very long bull run (knock on wood). Once again if you are the analytical and patient type you may want to compare stock/bond returns with the costs of your mortgage.
Step 7: Build and Give Wealth. I couldn't agree more! The reason we are all here is to make connects with fellow human beings and help everyone move forward together. The more you build the more ability you'll have to make an impact on your future generations and society as a whole! Keep in mind though as wealth is built it is important to protect it. Massive amounts of wealth are lost by inefficient estate and tax planning. Don't be the generation to make and save so much wealth, but lose it to the state and IRS upon your passing.
Have Your Planning Specialized For You
In whatever you do, having a specialized plan to attain the specific goals you have for your life is the most important! You yourself can take the time to understand the in and outs of financial planning to create a specialized plan. Although this is not something I would recommend because it is not how we operate in any other professional realm.
Leave It To The Professionals!
Lets get real, do you study for MCATs when you get sick? What about giving yourself a root canal? There are some things that should be guided by a professional and finance is one of them. Like I mentioned if you are still in steps 1-3, then it may not be the right time to pay for an adviser. Likewise once you have a fully funded emergency start to find an adviser that you trust. You will attain your goals faster then if you do it yourself. If this is not the case then, fire them, and find an adviser that will better suit your needs.
Thank you for your time!
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