9 Financial Habits Of Successful People
9 Financial Habits Of Successful People
When you analyse the habits of those considered financially successful, you start to see trends in their everyday behaviour, Julian Lingard says.
1. They keep learning
Once they’ve identified areas in which they want to gain wealth, they start educating themselves in those fields.
Invest in your self-knowledge by reading the relevant books, following the right bloggers and spokespeople, and keeping up to date with policy changes in the news. A lot of websites in New Zealand even send daily or weekly updates to your mailbox. There are tons of resources out there (although it’s important to first check their credibility) that will help educate your financial decisions.
Resources such as goodreturns.co.nz or investment.co.nz are good places to start, or of course just ask your adviser for updates – we live and breathe this stuff every day. Whatever source you pick, stick to it – everyone has an opinion and too much conflicting information from multiple sources can be confusing, overwhelming and prohibit action.
2. They ask for what they want
Most people realise that in order to create wealth initially, their income needs to increase.
By creating more disposable income, you can use it to generate wealth. Always look for how you can add further value in the job you do and seek out training opportunities to widen your skill set and result in income increases.
What value means can be different for every company, but by building strong relationships with your managers and the company’s leadership you can begin to understand your employer’s strategic goals and the role you play within achieving them.
Asking for what you want takes confidence and belief in your own value. Allow the experience of mentors, within an official and unofficial capacity, to guide you on what to ask for and when. It’s all part of the old adage – if you don’t ask, you don’t get.
3. They get onto the property ladder early
Buying a house as early as possible opens up the opportunity for other investments.
By paying off your mortgage as quickly as you can, you can decrease your interest costs and keep more money in your own pocket. Once you reach particular loan-to-value ratios, you have the ability to leverage other investments off of your property, and use money you formerly spent on mortgage repayments on potential income sources like managed funds.
Property as an investment is an appreciating asset; it will build your net wealth and create its own equity, too. It’s common to live within your means, but by allocating your spend to a mortgage, rather than rent or discretionary spending, you are building wealth.
4. They seek out passive income options
Passive income is the money received for little effort or personal time from investments such as rental properties and shares.
If you’re looking at long-term passive income, rental properties could be a good option as often you’ll have tenants paying off the mortgage. However, there might be little left over for passive income.
Receiving regular lump-sum dividend payments from shares in a company might be a better option for short-term passive income. But it’s important, before investing, that you know what the pay-out schedule is. For this kind of investment you also need a lump sum to invest and be patient enough to wait for investment growth.
Don’t forget the option to set up your own business, which plays to your expertise, but generates income from minimal input from you because someone else runs the business day to day. Alternatively, invest or partner in a business.
5. They run their personal finances like a business
Know the importance of budgeting and cashflow.
A lot of people spend their money ad hoc, so are surprised when the $100 a week of discretionary spending (e.g. eating out) is actually $200-$300. A clear budget helps keep you on top of your spending and make you aware how much you actually have leftover to invest. It also allows you to build accurate financial goals that are specific, measurable, attainable, realistic and time-based (SMART).
Successful businesses know where they are financially at all times – personal finances should be no different.
6. They spend and borrow smartly
Spend the right way and stick to budget.
Ideally all spending should be done with cash that you have and not bought on credit or higher purchase as you’ll be subject to higher interest rates.
Try not to borrow money for things that decrease in value. If you do need to borrow money, make your mortgage work for you. Don’t make the mistake of setting the loan up within the mortgage as you’ll end up paying interest on the item over the lifetime of the mortgage.
Always borrow to the side of the mortgage – just using the house as collateral is smart as the bank has the security of the property and so are likely to offer the loan at a lower interest rate.
7. They invest
Options for generating wealth are spread over multiple platforms.
For retirement alone, we should be saving around 10-15 percent of our annual income. If we save eight percent in our KiwiSaver, five percent should be invested through managed funds, which you can still have easy access to.
This money will accumulate over time and can be used to help pay off the mortgage or fund a retirement lifestyle.
8. They insure
Time, effort and money into organising their finances and growing wealth are protected by the right insurance.
What insurance you need depends on your personal situation. Life insurance and income protection are key introductory insurances. Life insurance pays a lump sum to your family and dependents upon your passing to ensure your debt and funeral costs are covered – people often choose this to take care of their family when they’re gone and help them maintain the lifestyle to which they are accustomed. In some cases, life insurance also pays out when you are diagnosed with a terminal illness. Income insurance protects what many say is a person’s greatest asset – the ability to earn an income. This protection comes in the form of ongoing incremental payments that cover loss of income while you cannot work due to illness, and takes away the stress and worry for you and your family at a time when the focus is on recovery. It generally pays out for bills and day-to-day spending.
9. They seek advice
Successful people leverage the knowledge and advice of professionals in all areas.
For your money matters, financial advisers are best placed as it’s their job to know what’s going on and stay up to date. Many advisers work for their clients for free, too, as they are paid by the suppliers. An adviser will help you create a tailored financial plan based on your goals, objectives and risk tolerance. Every individual requires a unique plan, which will develop throughout your lifetime as your circumstances, priorities and goals change.
Julian Lingard is an Authorised Financial Adviser with Lifetime. Julian has worked in financial services for 16 years, providing advice for large international corporations, SMEs and individuals.
OPINION: Have you ever stopped to consider just how much you will earn during your working life?
If you have a few minutes it really is quite useful to do - even if you’re not a number cruncher. All you need is your current gross annual income and how long a period you plan to stay in the workforce.
I grew up in South Africa, a country in which once you leave home and get your first full-time job, your parents immediately ask: ‘Do you have your health insurance sorted?’
For me that question came at a time when all I wanted to do was buy a lounge suite with my first pay cheque. But, knowing that I had to prioritise my health, the furniture had to wait.
There is a public health sector in South Africa but it is chronically understaffed and underfunded, and the wait times are astronomical. This means we’ve learnt to adopt a culture where health insurance is just another one of those protections you need.
If I’m going to insure my belongings – my car, my contents, my house – then why wouldn’t I protect my biggest assets – my health and therefore my ability to earn an income?