They Set Goals
Financially successful people are inclined to look toward the future. They visualize where they want to go and they chart a course to get there. This means setting goals and implementing the processes and tools necessary to attain them. The best planners add some granularity to their goals, establishing underlying objectives to facilitate their progress. They also document their plans, quantifying goals and objectives and assigning timelines wherever possible. Having a high degree of specificity isn’t always realistic, but always strive to make your goals as clear and as measurable as possible.They Forgo Instant Gratification for Longer-Term Rewards
In tandem with setting goals, financially successful people have a tendency to forgo instant gratification for longer-term rewards. This is most obvious when looking at their savings habits. Future-focused people live within their means, prudently managing their spending, avoiding bad debt and maximizing their savings (often with an initial goal of 10 to 20 percent of gross income). Saving can be difficult, especially in today’s highly commercialized society — which is fueled by nonstop advertisements assaulting our senses. Nevertheless, financially successful people are relatively resistant to temptations and peer pressures. They overcome the lure of excessive spending by tying their savings practices to their goals, forging a strong motivational link. They usually complement this psychological maneuver by implementing a budget to guide their journey month-to-month. The degree of rigor and detail varies widely, but nearly all successful people have a good feel for their finances. If not obtained directly, they obtain an understanding indirectly by paying experts to provide assurance.PRO TIP
The practices described can help you resist lifestyle inflation, which is also referred to as lifestyle creep. This is when you allow your costs of living to increase in line or in excess of your earnings growth. While it’s a common occurrence, it doesn’t have to happen. If avoided, your savings can be greatly magnified.
They Seek Guidance (Because They Don’t Know Everything)
Many financially successful people are very smart. Some have highly specialized knowledge, while others have a broad-based understanding of various disciplines. Regardless of their expertise, they tend to be cognizant of the fact that they don’t know everything. This self-awareness enables them to identify knowledge gaps and readily ask for help as needed. On the financial front, this means consulting with financial advisors, tax professionals, investment experts and estate attorneys. During these interactions, they pay close attention and absorb as much information as possible. Often, they study unfamiliar concepts and circle back with questions and ideas. Regardless of the extent of the feedback loop, financially successful people always embrace opportunities to learn and grow. This enables them to critically assess the advice they receive and to periodically monitor their financial position. The result is a framework for continuous improvement and sustainable financial success.They Exhibit a Persistent and Optimistic Attitude
It’s easy to look at a financially successful person and assume they’ve had it easy, perhaps benefiting from a windfall inheritance or a lucky cryptocurrency position. However, the vast majority of financially successful people accumulate their wealth over time, navigating around obstacles and overcoming unexpected challenges. Through the difficulties, successful people exhibit a persistent focus on their goals and maintain a generally optimistic attitude. This helps them put short-term setbacks in context, while remaining focused on the attainment of their long-term goals.They Give Back
Successful people also tend to have a propensity for generosity. They realize their success is at least partially attributable to others and they are grateful. They recognize the interdependency of people and they give back. This can take various forms, including funding charitable organizations, supporting local communities and businesses and mentoring junior professionals and students. This list isn’t exhaustive, but it highlights five of the fundamental financial habits of successful people. By incorporating these habits into your life, you can begin to improve your financial position. The process takes some time, but if you stick with it your perseverance will make a big difference over the long run.Financial Literacy in Real Life
For illustrative purposes, consider the hypothetical example outlined below. Phoebe, a future-minded 35-year-old, has minimal savings but owns a small, debt-free home she recently inherited. She just changed careers, taking a job with a financial services firm focused on auditing, accounting, taxation and business valuation.- She has some accounting and advisory experience, but lacks industry credentials. This bothers her, because she knows it limits her earnings potential and she’s aware of the difficulty of adequately saving for retirement. In light of her circumstances, Phoebe does the following:She visualizes the way she wants to live in retirement.
- With the help of a dynamic financial planning model, she projects the amount of retirement savings she’ll need to support her lifestyle given a myriad of assumptions — including her life expectancy, annual investment returns and the anticipated rate of inflation. After running the model a few times, she vets and refines the information with her cousin, an experienced fiduciary financial advisor.
- She looks at her current and potential earnings, which are dependent on attainment of the CPA designation. This leads her to make attainment of the CPA designation a priority, which she diligently works toward and achieves.
- In the process, Phoebe earns a higher level of income and implements a budget to keep her expenses in check to facilitate an increasingly large amount of annual savings.
- Along the way, she invests her savings in a highly diversified stock portfolio spread across a 401(k) plan, a Roth IRA and a taxable brokerage account that houses spillover savings. In doing so, Phoebe leverages the power of compound interest in a tax-advantaged manner and provides herself some drawdown flexibility in retirement.
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