If you’re a new graduate, taking your first steps into the adult world, here is the most important financial planning advice I can offer: Develop a millionaire mindset.
This absolutely does not mean making ultra high 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 and becoming one of a million millionaires.
First of all, let me define “millionaire.” Original research shows 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 and global wealth report findings, that’s not even close to lavish-lifestyle wealth.
You probably know a number of millionaires. If you don’t think of them as wealthy individuals, 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 real estate or home. Use a credit card only for convenience and pay it off every month.
If you ever find yourself with a credit issue or are 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 in the United States and around the word live on budgets that allow only a Ramen noodle lifestyle. When you start getting career paychecks, keep that lifestyle for a time. Your successes and failures happen for wealthy people as well.
Don’t increase your budget when you get a new job, a raise, get a lot of money, or a promotion. Always have your lifestyle at least one step below your income. This may be hard to keep yourself from spending money and not have credit issues. Stay focused on reaching your millionaire status goal and have the mindset.
To budget like a millionaire and reach your financial goals, follow these steps on every gross dollar you earn:
- First, pay your taxes. Estimate your total tax liability and be sure your employer withholds an amount of money 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. It is important to pay this on time and these typically don’t change month to month and are easier to plan with your budget.
- Fourth, set up short-term savings accounts for foreseeable future “unexpected” lump-sum expenses like car and home repairs, vacations, holiday giving, college tuition, stock market changes, mutual funds, and medical emergencies. Talk to your bank about the best type of account to setup for this short-term saving account. Some banks may offer the best solution for your short-term financial goals.
- 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 for financial success. Enjoy the rest and know that you are still going to reach your goals. Don’t get involved in looking at social media and their fake lifestyles that can only disappoint you when you haven’t reached your status.
3. Work like a millionaire.
Most millionaires and multi 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 to reach that millionaire status.
When you do, your work becomes play and you are achieving your goals. 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 for your personal growth.
The ways you spend, budget, and work are only part of the millionaire mindset and increasing your total net worth. Next week we’ll look at other ways you can build a fulfilling life by thinking like a millionaire. Check out the Millionaire Mindset Part Two that continues this conversation about having a millionaire mindset and the steps needed.
