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What if I told you that there were numerous strategies that rich people use to manage their money better than 99% of others. Well, in this article, I’ll share with you seven money tricks millionaires know that you don’t.
1. Setting up automated bill payments
Plain and simple, bills suck and they suck for two reasons. First, they drain money from your bank making you temporarily poorer and second, they can be easy to forget to pay. There’s nothing worse than missing a bill payment and having to waste an hour on the phone with a customer service representative trying to work things out.
The rich don’t have this kind of time to waste, the rich know that their time is valuable and that’s spending unnecessary time on monthly bills isn’t wise, so it’s for this reason that they set up automated bill payments.
Most companies that offer recurring services like cable, gas, heating, etc can set up automated payments that are withdrawn from your bank account each and every month. Meaning that you don’t have to carry around the mental baggage of remembering to pay your bills. But the benefits of setting up automated bill payments doesn’t stop here.
Automating this process will also allow you to make timely payments which helps you avoid hurting your credit score if a bill would happen to go unpaid.
Millionaires make paying bills as easy as possible by using this technique, this doesn’t mean that they are totally hands-off in the process. Most millionaires are known for being quite diligent in their financial management and this is for good reason.
More than 14 million Americans were victim of identity theft and credit card fraud in 2018, which is why most millionaires review their expenses on a monthly basis, therefore if you want to manage your money like the rich, then you should be reviewing your bills on a regular basis.
2. Designating zero spending days
When most people think about the millionaire lifestyle, they assume it involves frivolously spending money each and every day. Well they are wrong, in fact many millionaires do just the opposite by imposing zero spending days into their week. On these days, there is absolutely no spending and one of the benefit of saving money by doing this seems obvious.
There are actually many other positives, first having zero spending days forces you to pre-plan your spending, making you more likely to stick to your budget. You will have to designate which days of the week you can spend and which you can’t, forcing you to spend your time to assess your weekly allocation of expenses. Second, it helps you avoid unnecessary time spent online browsing. The average American spends almost 18 hours a week surfing the web which for millionaires could mean thousands of dollars gone. Moreover, knowing you can’t spend on certain days of the week helps cut down commuting to and from stores, allowing you to focus your attention on more value-added activities.
Finally, adhering to your spending day restrictions builds discipline which is a skill that is important in all aspects of your life. So if you want to truly live like a millionaire, then start by implementing one day a week where you don’t spend any money and as this becomes easier begin to add days until you are spending only what is required.
3. Creating and reviewing their money goals
The average person’s financial goals are quite broad, which is a main factor why they aren’t rich. If you ask them what their goals consist of, they would say something like my goal is to retire at 65 or my goal is to make six figures one day. In short, their lot cost your money goes to resemble that of a mediocre financial lives.
Millionaires on the other hand are diligent in their goal-setting ways. In fact, about 80% of the wealthy are obsessed with pursuing goals which includes a creation and review of short, medium, and long term goals. Some millionaires are so consumed by their goals that they review them every morning upon waking up and every evening before bed.
Most millionaires will tell you about goals in general is that they must be written down and they must be detailed. A Harvard Business study found that the 3% of graduates from their MBA, who had their goals written down ended up earning 10 times as much as the other 97% put together just ten years after graduation.
But once you have your goals written down, you must also review them. It stated that people who very vividly describe or picture their goals are anywhere from 1.2 to 1.4 times more likely to be successful to their goals than people who don’t.
Moreover, having detailed goals significantly increases your chance of success. One very effective method for creating goals is using the SMART goal framework. This method requires your goal to be specific, measurable, achievable, realistic, and timely. For instance, using the SMART goal framework, your financial goal could be save $12,000 in a high interest savings account in 12 months by setting up $1,000 monthly deductions with your employer.
Having a robust goal that satisfies all the elements of the SMART goal framework is much more likely to have you succeed than creating vague goals like save money or become rich.
4. Spending on self development
As per Warren Buffett, the most important investment you can make is in yourself and millionaires put this saying into practice religiously. You see, not all expenses are created equal and millionaires know that making smart investments in books, conferences, and training can yield them significant returns in the form of business contacts, knowledge, and even cold hard cash and the more money millionaires make, the more they spend on continuous education.
For example, Canadian entrepreneur and multi-millionaire Dan Lok invest more than five hundred thousand dollars a year into his education in the form of courses, coaching, and many other learning opportunities, and this type of spending doesn’t have to be limited to intangible things.
For instance, investing in a dual monitor setup has been shown to increase productivity by twenty to thirty percent, this increase in output could result in making thousands of extra dollars a year for the average millionaire. Unfortunately, the average person isn’t as keen on spending for self-improvement as a typical millionaire. In fact, the average American spends $200 a month on treating themselves, which makes up roughly 22% of their disposable income, but I’d be willing to bet that most would shy away from spending $20 on a book or $50 in an online course.
5. Outsourcing low value tasks
As I’ve previously mentioned, time is money and the one way the millionaire’s save time is by outsourcing their low value tasks. You see, the mindset of the average person is to do everything themselves in order to save money, however millionaires understand that just because they can do things themselves, doesn’t mean that they should.
Millionaires can rationalize the use of outsourcing because they understand the concept of opportunity cost. Opportunity cost is defined as the loss of potential gain from other alternatives when one alternative is chosen. For the rich, they know that spending two hours grocery shopping means two hours they can’t use to make money or enjoy time with their kids. Millionaires know how much their time is worth and by freeing up their time by getting others to accomplish some of their tasks, they’re able to lead more productive and enjoyable lives. Fortunately, you don’t have to be a millionaire to leverage the benefits of outsourcing, sites like upwork and Fiverr allow you to connect with skilled individuals who will be more than happy to take work off your plate.
In the past, I’ve used freelancers from upwork to proofread my article, design logos, and even manage my emails so that I get focused my intention on writing more articles, or allocate extra time to my studies.
6. Following the 30-day rule
Even for the rich, one of the biggest deterrents in the quest to save money are impulse purchases. Nowadays, we are constantly being bombarded by ads that make us more likely to pull out our credit cards and then spend. For instance, one moment you could be innocently scrolling through Facebook and the next minute you find yourself with a whole new outfit in your shopping cart, and if you think these are rational purchases, you be wrong.
Based on a study of 2000 American consumers, the average amount of impulse purchases per person was $450 a month which equates to more than fifty-four hundred dollars a year. To avoid these impulse purchases, and unnecessary purchases in general, whenever millionaires find themselves wanting to buy something new, they write it down along with the date. It will be in 30 days, then these wealthy individuals wait at least 30 days before actually trying to buy it.
Millionaires do this for a few reasons, first of all, it helps them avoid falling victim to impulse purchases, and secondly more likely than not having the time to mentally process a purchase will make them realize that they don’t really want the item as much as they originally thought.
Finally, this process allows them to refine their ability to delay gratification, in fact the ability to delay gratification has been cited as a leading indicator of fine actual success. Researchers at Temple University in Philadelphia ranked the most important factors in determining affluence; occupation, education, location, gender, and topped the list was delaying instant gratification veto.
Many of the more traditional signals including age, race, ethnicity, and height. Researchers believe that a person’s ability to envision larger future awards makes them much less likely to succumb to short-term pleasures, which is why the 30-day rule is critical to realizing financial success over the long term, therefore while millionaires know that they aren’t perfect, leveraging rules like this one can help them make smarter financial decisions.
7. Use the twenty thirty fifty method
Saving the best for last; millionaires leverage the power of budgeting through the use of the twenty thirty fifty method. Whereas the general public let themselves spend aimlessly, millionaires know that what is measured, isn’t managed, and one of the best ways to measure their financial is through the use of the twenty thirty fifty method.
This budgeting technique works by dividing your income into the following ways:
Fifty percent is designated to living expenses like rent, utilities, and groceries. The next thirty percent goes towards entertainment costs like going out to eat or seeing a movie. The final twenty percent is meant to go right into your savings account. The only problem with this method is that sending money to your statements account every month will not grow your wealth.
The average savings account yields just 0.09 percent interest annually which means that even if you have fifty thousand dollars in savings, you would earn a measly forty-five dollars in interest. This is why millionaires use the twenty thirty fifty strategy a bit differently than the average person knowing that savings accounts spare little interest.
Most millionaires will use that twenty percent for investing instead, so what do they invest in calm investment vehicles include equities in real estate which have historical average returns of 8.4 and 6 percent respectively so with that same $50,000 we just talked about you can instead be earning anywhere from 3,000 to $4,200.