Many people wonder how to achieve financial peace of mind. We often hear; how do I/we prudently save for retirement, repay student loans and consumer debt, pay off a mortgage, and ultimately reach my/our financial potential?
Much of the answer is your mindset and having the discipline to achieve financial freedom by shaping your habits to support your goals, leaving one in a much more favorable financial position. The Federal Reserve Board reports that nearly half of Americans are unequipped for a $400 expense, without selling items or borrowing money. What if saving money, repaying debts, and becoming financially independent were not the treacherous and impossible tasks that people make them out to be. Change your mindset, change your outcome!
Sarah Stanley Fallaw, director of research for the Affluent Market Institute and co-author of The Next Millionaire Next Door has identified six key factors and habits related to net worth potential. These wealth factors are shared by individuals who have built their own fortune. Her research is based on over 20 years of data, digging into the mindset and decision making of more than 600 millionaires in America, many whom one would never suspect they were earning a 7-figure income or have a 7-figure net worth. Before you assume that these are all people who gained wealth from inheritance or the lottery, 86% of these millionaires have never received a dime from inheritance, estates, or a lucky winning number.
The Six Wealth Factors
Frugality is one of the top factors that people of wealth share. Often they are living in the same house they had before their fortune was made. Their kids attend public schools, they drive Toyotas and Hondas that are 3 years old, and they set budgets and stick to them. By spending normally, their savings exceed their expenses, resulting in growing savings and an increased net worth.
People displaying confidence make decisions they feel assured in. The decisions they make will have positive outcomes on their family and household. This can be seen in investing, money management, and leadership situations. But don’t confuse confidence with gambling and high risk choices. With every decision made, the risk is known, and there is a plan to combat negative outcomes if they occur. Confidence can elude some; in that case, surround yourself with professionals who look out for your best interests.
One important realization to have is that you are in charge of your financial outcome. This starts with accepting the reality of where you stand financially. This also means that if a decision goes astray, you accept responsibility for the choice. By pinpointing your financial situation, you can make more realistic decisions moving forward. Extravagant vacations and $6 lattes may not be smart for your current situation, but they could in the future if you understand that small decisions impact your financial future in large ways.
With no future goal and no route to get there, financial independence is hard to obtain. By making both short and long-term goals you can measure your progress and savings. Setting small goals first allows you to better determine your long-term goals. Pay off your smaller debts first; small successes can make larger debts seem more obtainable. Once your larger debts are paid, aim for building a savings for retirement or for your children’s college. Start your savings with a reasonable percent of income and increase it over time.
Determination is a trait that helps you succeed in school, sports, the workplace, and in life. Being determined is a necessity for gaining wealth and security. Simply thinking about goals will not change anything, but changing habits, staying focused on reaching the goal, and pursuing until completion will result in positive outcomes. Don’t allow yourself to succumb to distractions that hinder your success. Not everyone is willing to pay this price of wealth.
Derailment from financial success often comes in the form of shiny items with expensive price tags. In today’s world, trying to keep up with the latest trends and perfect image comes at a high price. Ask yourself, are your purchase decisions made to emulate those who pretend to have great wealth? Income is what you bring home today. Wealth is what you have tomorrow. Spending your entire income leaves you with material goods but no long-term wealth, regardless of the amount on your paycheck.
The millionaire next door doesn’t display their wealth through lavish items, but instead through peace of mind, hard work, and perseverance. Pursuing financial freedom tends to be done quietly. Stop letting money be the top stressor in your life, quit making excuses for not achieving your goals. Change your mindset, change your outcome!
“Achieving economic success depends not on what has happened in the past, but instead on the behaviors you employ today and tomorrow.”