This absolutely does not mean making wealth your life goal. But thinking like a millionaire will help you build a solid financial foundation to support you in reaching your life goals.
First of all, let me define “millionaire.” A millionaire is someone with a net worth of one million dollars. That amount would generate an income of around $30,000 a year. In today’s world, that’s not even close to lavish-lifestyle wealth.
You probably know several millionaires. If you don’t think of them as rich, it’s most likely because they practice the millionaire mindset. Here’s how you can develop it, too.
1. Spend like a millionaire.
The number-one common denominator of wealth accumulators is frugality. Millionaires shop sales, clip coupons, read labels, compare prices, and bargain. People who build wealth usually don’t wear designer clothes, drive luxury cars, live in extravagant houses, or shop at Neiman Marcus. They typically wear jeans bought on sale, drive used Toyotas, live in middle class neighborhoods, and shop at Walmart.
There’s no place in a millionaire mindset for credit card debt. Pay cash for everything but your home. Use a credit card only for convenience and pay it off every month. If you ever find yourself unable to pay the full amount, cut up your card. Pay off the balance as quickly as you can, and then don’t use a credit card for at least one year.
2. Budget like a millionaire.
Most college students live on budgets that allow only a Ramen noodle lifestyle. When you start getting career paychecks, keep that lifestyle for a time. Don’t increase your budget when you get a new job, a raise, or a promotion. Always have your lifestyle at least one step below your income.
To budget like a millionaire, follow these steps on every gross dollar you earn:
• First, pay your taxes. Estimate your total tax liability and be sure your employer withholds enough to cover it. If you are self-employed, deposit a percentage of every check into a savings account that you use solely to pay your quarterly estimated taxes. Never “raid” these funds.
• Second, put away at least 20% or more of every gross dollar you earn until you have six months to one year of living expenses in an emergency account. Then continue to invest that 20% of your gross pay in qualified retirement plans like 401ks, 403bs, or IRAs.
• Third, pay your fixed expenses like housing and utilities.
• Fourth, set up short-term savings accounts for foreseeable future “unexpected” lump-sum expenses like car and home repairs, vacations, holiday giving, college tuition, and medical emergencies.
• Fifth, go ahead and blow the rest any way you wish. For most people, this means living on 30 to 60 cents out of every gross dollar you earn.
3. Work like a millionaire.
Most millionaires work long hours, and most of them love what they do. They often have some “skin in the game” by owning part or all of their own businesses. As much as possible, find a job and career you love. When you do, your work becomes play. Invest time and money to keep your career skills and knowledge current. The millionaire mindset knows that your career is your most valuable financial asset.
The ways you spend, budget, and work are only part of the millionaire mindset. Next week we’ll look at other ways you can build a fulfilling life by thinking like a millionaire.