“I don’t know much about being a millionaire,” author and legendary writer Dorothy Parker once said, “but I’ll bet I’d be darling at it.”
Wouldn’t we all! While most of us won’t be buying a yacht anytime soon, you can apply some smart advice from millionaires to your life on almost any paycheck.
Pay Yourself First
First, an acknowledgement: Advice that boils down to “save more” is some of the most frustrating “help” to hear. All too often, millionaires come across as impossibly out of touch about how far most of our paychecks stretch (or don’t). But learning to save is a fundamental financial lesson, whether you’re hoping to bank seven figures or a basic emergency fund.
Start by making yourself a comforting hot beverage and itemizing every penny you spend in a typical month. If you don’t follow a budget, this is the time to make one. What are you spending on food that gets thrown out, or for services you don’t really use? If you don’t routinely use a budget, chances are good that you’ll discover some “wasted” expenses that you can put to better use.
In a perfect world, you’d be able to sock away 10%, 20%, or even 50% of your income to grow wealth. If 10% is too high a savings goal, aim for 5%, or 3%. Talk to the HR or accounting person at work to have your chosen amount automatically deposited in a different bank account, or set up a weekly auto-transfer. If you make it three months without having to use savings to make ends meet, up your savings amount by another percent or two until you reach your goal.
Avoid Credit Card Debt
“Credit cards are the worst investment that you can make…I should have paid off my cards every 30 days,” Mark Cuban, a billionaire entrepreneur and investor, reportedly admitted.
The average American household has nearly $17,000 in credit card debt, according to USA Today, based on data from the Federal Reserve. Avoiding this trap starts with rethinking how you use your cards.
Credit cards can make you feel more like a millionaire by giving you access to thousands of dollars more than you could pay out of your account. The problem is, your available credit is a form of loan, not real money.
In some special circumstances, like moving across the country for your dream job, credit can cover costs you couldn’t handle on your own, allowing you to take a major opportunity. On a daily and monthly basis, though, use your bank balance and budget to determine how much you can spend, not your credit card limit.
Save Money in the Right Accounts
Where you store your savings can play a large role in how quickly your money grows. Learning about compound interest is a smart strategy, because the principles apply the same no matter how much money you can afford to save.
Basically, you want to find a savings account that lets you earn interest on the total amount in the account, including previous interest earnings. That way, the “free” interest money that you didn’t need to work for will also accrue more interest for you. The more often a savings account compounds, the better. If you’re adding money steadily, your interest amount will also grow with each compounding period.
Compare banks to determine which option offers the best rates and most frequent compounding. If you know you won’t need to withdraw funds for a set period of time, CDs can also be worthwhile accounts to cultivate, since they often offer higher interest rates than many standard bank savings accounts.
Build a Long-Term Plan
By the time we hit our 30s, most of us know we should make a budget to manage our monthly expenses. But have you thought about what you’d like your savings to look like 5 or 10 years from now?
Alexa von Tobel, CEO of LearnVest and author of Financially Fearless, wrote, “Financial planning is not just for the 1 percent…Not having a plan is a plan–just a really, really bad one. When you play it by ear, you’re throwing away money that you could be spending on the things in life that really matter.”
Set specific goals, and don’t be afraid to think big. Saving $50,000 is easier when you’ve got 10 years to tackle the project. The idea is to build a sustainable lifestyle, including money for fun, that also contributes toward major financial goals you’d like to meet in the future.
Invest in Your Career Potential
Millionaires take their earning potential seriously. You may not dream of running your own business, but you can still take steps to make the most out of your career:
- Learn competitive skills for your industry. Read job listings for your position (and one step higher) to learn what managers are looking for. Taking the time to acquire an additional skill helps you stand out.
- Negotiate salaries and raises. Especially if you know you’re a highly qualified candidate, don’t hesitate to ask for what you’re worth. Searching salary data for your area can give you a target number.
- Network and build relationships. David Cantor, entrepreneur & founder of DM Cantor, states “You have to think of your career as a 40+ year career. You never know when you might need assistance from a colleague to advance your career.”
- Consider additional income streams. This doesn’t need to be a side job. You can’t spend every hour working! Passive income, like sales from a book you wrote, advertisement earnings on your blog, or stock investments, can provide additional sources of revenue that aren’t tied to hours on the job.