Far too often we are lured by the thought that there may be a shortcut to wealth. We all dream about winning the lottery, or investing in the next great investment, or starting a wonder business that becomes a license to print money. I was up late this week and I had the TV running in the background only to hear an infomercial about a stock trading system guaranteed to make your rich. Our society is filled with schemes to go from rags to riches in less time than you think. If it is really so easy, why is 80% of the wealth in Canada in the hands of 20% of the people?
What are these 20% doing right to accumulate the majority of the wealth in Canada? Numerous books and studies have tried to answer this question so here are my seven habits of wealthy Canadians.
They save regularly.
Wealth is not built by accident and contrary to popular belief wealth is not inherited. 80% of the wealthy are first generation and they built their wealth one step at a time. One of the key habits wealthy people possess is a systematic disciplined savings plan. The best way for anyone to develop this habit is to start an automatic monthly savings plan where money comes off your paycheck or out of your bank account before any other expenses or deductions. Studies suggest that wealthy Canadians save about 20% of their income.
Related article: Principles of saving money
They live below their means.
According to the book the Millionaire Next Door by Thomas Stanley and William Danko, you may be surprised at what a wealthy person looks like. According to their research, the typical wealthy person might not be the one that drives the nice new Mercedes, living in the biggest house, wearing the top designer clothes. Rather, the millionaire next door is the person living in the same bungalow they have lived in for the past 20 years, they may drive a nice car but it is an older well taken care of car with lower mileage.
Related article: What is your net worth?
They know where their money is going.
Most wealthy people not only live below their means but they also are very conscious of where they spend their money. In fact, studies suggest that about two thirds of wealthy people know exactly where they are spending their money. If you want to become wealthy, you should develop a habit of tracking where you are spending your money on a monthly basis. Budgeting can be a very intimidating word but the fact remains, it is an essential habit for wealth accumulation.
Related article: Know your spending
They use debt prudently.
Wealthy Canadians make a very conscious effort to avoid, minimize and pay off debts. It is so easy in our society to access debt. Every week, I get mail offering lines of credit, credit cards and access to other forms of debt. “No Money down”, “Don't pay till 2008”, “interest free” are all common ploys to get you to spend money you don't have. It is so enticing but, one of the habits you'll need to build wealth is to avoid spending money you don't have.
Related article: Conquering the debt mountain
They maximize income.
In a study by Statistics Canada, there is a correlation between wealth and income. The more money people make the more likely they are to build wealth faster. While this makes intuitive sense, it may not always be easy to just go out and increase your income. That being said, it is an important habit to building wealth. Take time to train your mind to think outside the box about ways you might be able to increase your earning power. This might mean getting more education or starting a business or getting a part time job, etc. No one said building wealth did not take some effort.
Related article: The importance of earning more money
They own appreciating assets.
The majority of wealthy people own their own home. Owning your personal residence develops some productive wealth mindsets. Ownership gives you a better appreciation for the value of goods. In addition, most wealthy Canadians have equity in other appreciating assets like business, stocks and real estate. The next time you put your money into something, ask yourself if it is an appreciating asset or a depreciating asset.
Related article: Financial success from financial assets
They get professional advice.
Wealthy people typically have a team of professionals to help them accumulate, manage and protect their wealth. This might include accountants, lawyers and financial advisors. Studies suggest that although they use professional advisors, they ultimately make the final decisions themselves. If you want to become wealthy, you must seek help but ultimately retain control over key decisions.
Related article: Online guide to working with financial advisors
Just like Stephen Covey feels that there are some key habits to become effective, I think there are some key habits to build, manage and retain wealth. Good luck!