Here are five habits you must develop – whatever your budget – and simple actions to get you started.
1. Pay attention to your money
As the saying goes, what you pay attention to grows. Wealthy people are in control of their money – they look at it every day and they look with purpose. You should too! At any given point in time you should have a clear understanding of how much money:
- you have
- you owe to others
- will be coming in (over the next month), and
- will be going out (over the next month)
Knowledge is power; knowing exactly where you stand allows you feel in control. You might not be where you want to be standing, but the first step to changing that is knowing where you’re starting from.
Action: set a reminder on your phone or calendar to log in to your online banking once a day and remind yourself of where you stand.
2. Prioritize your savings
What’s the first thing you do when you receive your paycheque – pay your bills, or pay yourself? Too many people pay their bills first and attempt to save what’s left. The problem with this approach is that there’s usually nothing left to save at the end of the month.
To live rich you need to prioritize saving and pay yourself first. Don’t rely on your memory or willpower though. Use the power of technology and create an automated transfer from your chequing account to your savings account. Weekly, bi-weekly, monthly – whatever feels right for you.
If you’re working on a tight budget keep in mind the amount you save isn’t as important as developing the habit of saving. Start with as little as $20 per paycheque. You won’t miss it.
Action: Setup an automated transfer from your chequing to your savings account for at least $20 a month.
3. Earn more than you spend
Hand in hand with paying yourself first, you have to make sure your overall cash flow is positive. You have more coming in that going out. This is arguably the most important habit to living rich because without it you will consistently create a state of debt.
If you are currently earning the same or less than what you spend, earning more money will not solve your cash flow problem . As soon as your income rises, your spending will rise too. This is why people who win the lottery often end up broke after a few years; their habits drive them to spend it all.
Action: Download the Starter Financial Plan toolkit from my homepage and fill out the cash flow plan to figure out how much your financial priorities, essentials and lifestyle cost. That’s your earnings target.
4. Think quality, not quantity
Our purchasing decisions are often based on finding a deal – buying stuff that’s cheap or on sale. For example, think of what’s sitting in your wardrobe. Have you ever bought five $20 “okay” shirts that you wear only once instead of the $100 “I’d wear this forever” shirt? I know I have, and shopping this way makes me feel unsatisfied and leaves me yearning for more.
To live rich, our purchases should be based on the overall value of what we are getting. It’s far better to pay a fair price for something great than a great price for something fair. You’ll end up with less stuff, and much more joy.
Action: Do a “joy check” before you buy; if it doesn’t rate at least 9/10 on the happiness factor, don’t buy it.
5. Spend on what matters most
You can have what you want but you can’t have it all. Even some of the richest people have limits! Beyonce and Jay Z have a combined net worth of $1 billion, far short of the $350 billion they would need to buy Facebook… but why would they want to own Facebook?
The point is, we feel rich not when we can afford anything, but when we can afford what really matters to us. It’s much easier to cut back on your $5 a day latte habit – which adds up to over $1,000/year – when you know that you’re doing it to enjoy a week on a tropical beach / an Apple Watch / designer purse / (insert something that gets you excited here).
Action: Write down your top three desires and the things you spend on that support those desires. For example, if you’re a foodie then you might enjoy spending on organic groceries, cooking classes and a Michelin star meal.
Now, brainstorm a few things that do not support those values which you could cut back on to make room for what really matters to you.
Lisa Zamparo is a financial strategist and lifestyle optimist, as well as a Chartered Professional Accountant (CPA), business coach and personal finance expert in Toronto who helps people make intentional decisions with their money. As a one-on- one coach, her personalized approach to financial planning helps her clients achieve their goals by aligning their spending with their priorities. As an inspirational educator, Lisa leads workshops that infuse mindfulness principles with financial concepts delivered in a fun and approachable style.