You don’t have to be a rocket scientist to build wealth.
In case you didn’t let that first sentence soak in, read it again.
The wealthy understand that while being smart can certainly help you earn money, that doesn’t necessarily mean you’ll build wealth with your earnings.
Likewise, being famous doesn’t necessarily mean you’ll be able to build wealth. Sure, it can help, but there are countless stories of those who earn a ton of money only to watch it disappear seemingly overnight.
So, what are the secrets to building wealth? And, once you build wealth, how do you keep it? The truth is that the “secrets” to building wealth really aren’t secrets at all.
They are simply commonsense behaviors that, when practiced with purpose and over a long period of time, are likely to result in a pool full of cash (if that’s how you like to stockpile your money).
Let’s take a look at some of these behaviors.
1. Say “no” to debt.
Joseph A. Carbone, Jr., CFP®, wealth advisor and founder of WealthManagementfortheRealWorld.com reveals,
“The most successful clients that I have worked with over my 18-year career, are those that have no debt and positive cash flow.”
Saying “no” to debt is truly a behavior at the heart of so many wealthy individuals. Why? It has something to do with interest rates.
Student loans, credit cards, personal loans, car loans, and many other types of debt all have interest rates. Some of these rates are higher than others, but one thing is guaranteed: you will pay a lot more money than necessary if you make minimum payments on a loan, and the interest rates will slowly drain any wealth you do have.
Unfortunately, that’s where many people get stuck. They are so used to debt, they think it’s normal and shrug it off as a way of life. Sure, it might be a way of life for some people, but it doesn’t have to be a way of life for you.
The way to get out of debt is to focus your energy on saying “no” to more debt. Make money fast, you might choose to attack your debt even faster than you might initially think possible.
2. Practice discipline and invest for the long-term.
It can be all too easy to get caught up in the hype of this stock or that stock. The media continually reports this or that “new hot stock.” Don’t fall for the trap. We all know it’s better to diversify your investments and not get carried away by the allure of quick wealth.
Scott Wellens, CFP®, financial advisor and founder of BestinWealth.com explains,
“The number one behavior that inevitably leads to more wealth is staying disciplined. Emotions are very real and very dangerous, and it’s hard to be objective about your money, especially when people around us are talking about doom and gloom as it relates to the economy. Most of your money is invested for the long-term – do not make short-term decisions about your long-term money. The best way to get market-like returns is not to fool with your investment mix. If you do, the probability of achieving your financial goals will most likely go down. Predicting where the stock market is headed and making decisions off of the prediction is a fool’s game. It requires a crystal ball – and no one has a crystal ball. Stay disciplined.”
The stock market, for example, can be extremely volatile from year to year. Newbie investors might find themselves panicking when the stock market takes a steep dive, and decide they can pick the winning stocks. This is a mistake.
The best advice is to buy and hold. And when you do so, hold for a long, long time. The discipline to stick to the buy-and-hold strategy isn’t easily found, but if you can find it, you’re much more likely to find yourself financially stable in retirement.
3. Stay frugal, friends.
You just got a new job. Now you’re bringing in the big bucks. Time to relax and buy that boat you always wanted, and that recreational vehicle, and that gold-infused (and bejeweled) smartphone case (to protect your less expensive smartphone, of course), right?
You guessed it: wrong!
It’s a much better idea to stay frugal. Remember, you can only build wealth by saving money, not spending it. Sure, you’re going to have to spend some money, but you don’t have to inflate your lifestyle to match your new income. Far from it.
Benjamin Brandt, CFP®, at RetirementStartsTodayRadio.com, talks about the lifestyle creep phenomenon:
“It’s human nature for any increase in income to be immediately swallowed by lifestyle improvements, a phenomenon known as ‘lifestyle creep.’ Avoid lifestyle creep and build guaranteed increases into your savings plan by changing the way you think about annual raises. The next time you are presented with a raise, challenge yourself to save half of the increase, and ‘creep’ with the other half. This strategy will allow you to pay yourself first, enjoy the fruits of your labor, and build wealth over time.”
It’s better to stay frugal, build wealth, and have a firm financial position rather than squander your money on things that you really don’t need – especially over the long-term.
There are plenty of ways to save money. Learn them, dream them, and act. Act frugal. Your wallet will thank you. Well, maybe not right away, but over time it will.
There is a common thread that ties all of these tips together: earn more, save more, and spend less. That’s an equation that will get you on the moderately-fast track to building wealth. Sure, it’s not an overnight fix, but it’s worth the journey.
To motivate yourself, envision what you could do with your wealth. Perhaps you could quit your day job and go on that mission trip that would be much more fulfilling. Maybe you could give more than you ever thought possible. Leave an inheritance to your children and grandchildren! The sky’s the limit.
This post originally appeared on Credit.com.