Ever wondered what the key traits of the rich are? What are the rules by which they live to stay rich? Actually, there is nothing special about it. These are simple rules that they follow in the long term, and then it becomes a habit. Here are a few money rules followed by the rich.
Automate your savings
If you see idle money in your account, you will find a way to spend it. That’s why the wealthy never rely on human judgment. They set up automatic transfers so that money moves into investment or savings the moment income arrives. This way, they spend only the leftovers. One should transfer at least 20% of income towards investments. The more, the better.
Use a credit card for wealth building, not for a debt trap
The rich do not use credit cards for borrowing; rather they earn money from them. They use a credit card only for the amount that they already have in their account. First, they maximize cashback and rewards and then pay the full amount even before the due date. While the rich buy only what is necessary, the poor buy unnecessary things, sometimes driven by greed of cashback or rewards, even when it cannot afford it. Ultimately, defaulting on payments at the expense of their credit score.
Turn unexpected cash to long-term wealth
Sometimes you get a big sum of money. It could be a bonus a tax refund or from an unexpected source. When a poor mindset receives such money, they immediately rush to buy the latest gadgets and find ways to spend it all. While rich use a substantial sum to invest in stocks or mutual funds, which gets converted into long-term wealth.
Don’t buy, rent
The rich do not own the assets that depreciate fast, such as luxury cars, high-end gadgets. Rather, they rent these assets. By renting such assets, they can use their capital for appreciating assets.
Multiple income streams
While the poor have only one income stream, the rich may have several income streams. For example, they may be earning a salary, also get regular rent from owned rental properties, dividends from stocks held, and extra income from side hustles or businesses, thus ensuring to earn money while they sleep.
Buy assets, not liabilities
Anything that earns cash for you is an Asset, while anything that requires payment is a liability. Rental property is an asset. The car is a liability. Stocks are assets. Expensive gadgets such as the latest iPhones are a liability. Rich people buy assets, not liabilities.
Avoid a quick rich scheme
Rich avoids get quick-rich schemes. They do not chase such high returns, which may risk their capital. Capital protection is their first rule of investment. More than high returns, they believe that compounding takes care of the growth of capital over time.
Must have an Emergency Fund
The rich safeguard themselves from unexpected events. They keep at least six months of living expenses in liquid form so that it can be used in extreme situations, and any such event does not dent their long-term finances. You can learn to create an Emergency Fund here.
Track every penny
The rich track the money spent. They prepare a budget and avoid overspending. People with a poor mindset usually have no idea where their money is being spent. Sometimes, even high-earning people behave as people with a poor mindset. Despite earning high pay cheques, they remain hand to mouth.
Keep sufficient insurance cover
Rich mindset understands the value of insurance. They keep investment and insurance separate. They take sufficient term insurance to safeguard their family. Also, they take out good health insurance cover for their family so that any health emergency does not wipe out their wealth.
Avoid keeping too much cash in your account
Rich-mindset people never keep too much cash idle in their accounts. They keep the money in a liquid fund or bank fixed deposits, which earn more interest than keeping cash idle.
Plan Their Taxes
Rich people plan their taxes in the start of the year, as compared to poor people, who wait till the last moment. Planning taxes in advance helps them find good avenues to invest their money and save taxes. Remember, money saved is money earned. Rich also set off their losses to reduce capital gain tax.
The above money rules are not difficult to implement. It requires a little bit of discipline and planning. That means it requires a change in mindset from poor to rich. That discipline over time becomes a part of the system and creates true wealth.
