Make Improvement In These Six Areas To Build Wealth
Have you ever looked at your peers and wondered why some seemed to be wealthy and others have struggled financially? Do you know how to build wealth?
One of the first books I read when I was getting started as a financial adviser was, “The Millionaire Next Door” by Thomas Stanley. He founded the Affluent Market Institute to research habits, life experiences and attitudes of wealthy individuals. This research demonstrated the importance of six key characteristics for developing effective household financial management.
◗ Frugality: a general orientation toward living below your means.
Being frugal is not always considered a good trait. Frugality does not necessarily mean depriving yourself of the things you enjoy. Rather, it means not overspending on things you don’t truly enjoy. In this manner, it is closely tied to social influence.
Frugality means living below your means. If you are spending more than you earn, your financial situation will deteriorate. Increasing your level of savings will provide future choices.
◗ Confidence: belief in your effectiveness at managing money.
Making money-related decisions can be challenging, especially when there are so many options and opinions about how to manage our financial lives. Being confident in your ability to make wise choices is a trait of successful wealth builders. Confidence comes from good examples set by parents, trial and error, or self-study. Confidence is built by seeking knowledge and consulting with experts.
◗ Control: experiences and behaviors that demonstrate your view on what influences financial outcomes.
“Locus of control” refers to the extent to which people feel they have control over the events that influence their lives. Successful wealth builders have an internal focus. They believe their decisions and behaviors are more important in determining their long-term success than are their circumstances. You make your own spending, savings and investing decisions, and these revisions will positively impact your future outcomes. Financially successful individuals place greater emphasis on their actions than on external or uncontrollable forces.
◗ Focus: the ability and display of distraction-free work on financial matters.
Financially successful individuals know that planning and follow-through are the ways to achieve goals. Our modern lifestyle can be overwhelming. It’s important to set aside a specific time each day or week to tackle those financial-planning tasks.
◗ Planning and monitoring: setting aside time to manage finances and monitoring financial management.
With few exceptions, building wealth is a focused and thoughtout process of planning, setting goals, monitoring income and expenses, and ensuring that spending and saving plans are met. This planning and monitoring leads to an acute awareness of your current financial situation. This level of awareness helps prevent financial surprises. When there is a change in your circumstances, it might mean you need to alter your plans and goals.
◗ Social indifference: ignoring the consumption patterns of others.
Today, with social media along with traditional advertising, we have access to seemingly unlimited information about the lifestyles of our neighbors, co-workers and celebrities. Those who are successful at building wealth are more indifferent and less influenced by others. They also have an awareness of how marketers work to encourage consumption and can sift through the hype to make spending decisions that align with their own financial goals, even if that means they are out of sync with the mainstream.
Developing a wealth-building mindset does not happen overnight. The goal is to make incremental improvements over time. What are the areas in which you feel you could improve core competencies?
What are the steps to take today? Set aside time to plan? Learn about marketing tricks and become a smart shopper?
Understand your cash flow and work to spend less than you make?
Master that competency and then tackle another. Work on improving these six areas and you can become the one who makes others wonder how you became so successful.