When I was growing up, my mom always said I should learn from the mistakes of others so I didn’t have to make them all myself. Well, it turns out the wealthy have made plenty of mistakes and have learned much from trial and error.
In his book Rich Habits, Thomas C. Corley said, “Successful people do everything in moderation. Rich people enjoy life.” He believed that we can learn from the rich by observing their spending habits, and combining that with strong financial literacy knowledge and skills will enable us to spend our money wisely and keep more of it for ourselves. Here are a few lessons we can learn:
- There are perks to spending below our means
Our happiness isn’t reliant upon a set status of material goods and the image it creates. It is perfectly fine, and in fact beneficial, to spend below our means. When we don’t waste our money by spending it on things that we don’t need or that don’t align with what we truly value in life, we are able to save more, and ultimately invest it in ways that matter.
- Don’t let emotions drive your financial decisions
Emotions and finances often don’t mix. Rich people are able to remove their feelings from the equation when it comes to making financial decisions. They know that allowing your emotions to dictate a financial decision can lead to regret if you are stuck with a purchase you don’t really want because of errors made during a rush to judgment. Worse yet, if you didn’t do your due diligence, your financial decision could be ill-advised or unsound. You might find yourself harming your credit or finances if you overextended yourself just to make an emotional purchase.
- Don’t make spontaneous purchases
Spontaneous or impulse purchases can wreak havoc on our budget by causing us to buy things we don’t need. Having a financial plan and sticking to it-keeping your eye on the prize-is the remedy, and helps you stay on track toward meeting your goals.
- Maintain control of your credit card spending
We have already discussed how paying interest on debt can impact your financial security. When you spend money on a credit card, be sure not to overextend yourself. The goal should always be to not use any more credit than you have to and to make more than the minimum monthly payment required. Paying off your credit card bill in full each month will mean that you have more credit available to you if you need it, and that you will not have to spend your money paying more interest. It will also help to keep your credit score higher, which is very important if you should ever need to apply for a loan.
- Invest wisely
Don’t engage in risky investments. When you do invest, make sure it is as secure and diverse as you can make it so that you don’t risk losing all of your money if the market declines in one area. Even better, invest in buying assets that can generate more income for you. Be sure to save money in case of an emergency.
- Don’t overindulge
The wealthiest people understand the importance of maintaining a sense of control in their lives. They could overindulge financially, but they choose not to get themselves in situations where their finances are damaged. They also know it is crucial to take care of themselves. They learn new things. They exercise to stay healthy. They know that the investments they make in themselves and their personal wellbeing will pay off in the long run.
- Budgeting is a good thing
People often think of creating and following a budget as a chore just another thing they have to do. In reality, figuring out how you spend your money is a gift you can give yourself. When you recognize that a substantial amount of your money is spent trying to help you make up for your weaknesses (real or perceived), you can commit to making a change and only spending money on the things that are in line with what you value in life. You might just be surprised at how much money you can save.
- Re-evaluate your recurring payments
Today, many of us make automatic payments for our monthly bills and subscriptions. This allows businesses to deduct our payments from our credit card or bank account without us even giving it a second thought. These automatic deductions will continue indefinitely unless we make a conscious effort to stop them.
It is important to regularly review where your money is being spent and decide if you still want and need everything you are spending it on. Everything from cell phones and cable television, to internet service and magazine subscriptions, and so much more can be paid for with automatic bill pay. While it is convenient, it may also end up costing you more by keeping you locked in and paying for things that aren’t really necessary or important to you. If your goal is to save more money, re-evaluating your recurring payments might be a good place to start. Making a new car purchase
When you buy a new car, chances are you will not have the funds immediately available to pay for it in cash. That means you are making a commitment to a long-term loan in order to purchase it. By borrowing money to pay for the car, you will be paying money for an asset that immediately depreciates. That means that as soon as you drive the car off the lot, there is a difference between the value of the car (it goes down) and the price you paid for it. All too often, people are so eager to have a new car that they end up trading in their cars for a new one every few years, and they end up losing money on every trade. Be sure you have done your homework and that you are receiving the best possible deal for the car.
If you are able to pay more than the required monthly payments or make a larger down payment, that will help you to pay less in interest, as will buying a car closer to being within your means. You don’t have to buy the most expensive model which will cause you to pay more for features that you really don’t need or use. Keep in mind how much the car will cost you over the long run, in terms of the cost of gas (miles per gallon you can expect to get) and insurance and maintenance costs. If you have to spend extra money on these things, you won’t be able to save it or use the money to help pay down the debt faster.
