Habits are the keys to success. Sadly we are not all born with winning habits, nor are they automatically passed on by our parents, teachers or peers. If you fail to model success and develop winning habits – success may be one victory that will remain elusive forever. Only when you have the right processes in place are you able to move towards your goals with less effort. Forming habits will require effort but once the habits are formed it does become second nature. Winning habits build wealth over time.
1. Have A Plan. You never set off on any journey without some idea of where you are headed. As the saying goes, ‘if you don’t know where you are going, any road will get you there’. Make sure you take time to write down the direction you want to head and make it a habit to revisit and re-evaluate each quarter.
2. Spend Less Than What You Earn. If you want to get ahead, you must manage your cash flow with habits that ensure you spend less than you earn. In this way there is money left over at the end of each month. Hardly anyone I’ve met does a budget, a small few do a budget and review each month. Good money managers do a budget and then forecast that out over the next month. And finally the 1% – Budget, reconcile and then forecast – these are the great money managers. Most people stick with a budget once they learn and see the results. As a further word of advice, try to not pay full price for lifestyle or discretionary goods and services. Negotiate where possible or find discounts.
3. Always save a portion of what you earn, no matter how small. I cannot put enough emphasis on the habit of regular disciplined savings. A good rule of thumb is to save 10 per cent of your net income and put it towards appreciating assets. This goes for any pay increases or bonuses you receive too. Your ultimate goal is to form a habit of saving 10 per cent everywhere and finally moving from 10 per cent of your net income to 10 per cent of your gross income.
4. Only use credit cards if you can pay them off each month. In a world of instant gratification, one of the biggest financial killers is the bad habit of spending today what you are likely to earn tomorrow rather than spending today what you earned yesterday. Develop a habit of only spending what you can pay off in full be the end of the month. If you have difficulty in managing this debt, see a financial counsellor immediately as this is indeed one of the biggest killers of wealth creation. Most people in the category struggle to get back to zero let alone get ahead.
5. Turn bad debt into good debt. Bad debts are those debts that do not have tax deductions attached to them. That is you have borrowed money to buy something which is not likely to produce any income for you. Personal loans and ongoing credit card debts fall into this category.
6. Always read and become more financially educated. I’m sure you’ve heard the term knowledge is power. The more you read and learn the better decisions you will make. Knowledge doesn’t actually equal power. Knowledge Plus Action = Power.
7. Invest regularly and understand the magic of compounding. We discussed that you should save 10 percent. Now we look at what to do with money. While you may hear ‘timing of investment is everything’. I am a great believer that ‘time in the market’ will matter more. By developing discipline and a regular savings and investment habit – you are making your money work for you – not you working for it! Once you start investing, you need to let the magic of compounding work for you over time. Remember, its not how much money you make – it is how much you keep and what you do with it that will differentiate you from the herd.
To be financially successful, you will need to develop on-going habits. The good news is that you can make your mistakes with lesser money today, but thanks to the good habits that you are forming, you will avoid costly mistakes in future. Wealth is not created over night – do not compare yourself to anyone else. You are the only person that you should be measuring off. Are you better than last year, last week or yesterday! There are no quick fixes, silver bullets or magic pills. If you create strong solid foundations and basic habits – over time you will be able to enjoy the fruit of all your hard work.