If most of us treated our personal health the way we treat our money, we’d probably be hospitalized and on our deathbed within a month, right?
If we want to be healthy, we know it’s important to pay attention to things like sleep, hydration, nutrition, and movement. Similarly, there are habits that stop the harm to our financial health, yet many of us choose to ignore them or even go the exact opposite direction!
One thing I’ve learned about multi-millionaires is that they stick to three habits like a drowning person clings to a life preserver. They know these habits will not only protect them, but also help them grow their wealth. I want to share these three habits with you today, and while they may not make you physically fit, they will get your finances in the best shape they’ve ever been in.
#1: Stop Budgeting
Do you feel inspired when you budget? Probably not, because it’s actually a limited, selfish exercise.
Here’s why: when you budget, all you’re thinking about is what to cut and save. You’re spending all your mental energy on reduction rather than thinking about ways to add value.
Now, if you’re someone who spends more than you earn, budgeting is a good idea. But if you earn more than you spend, there’s a better way to do things: Mindful Cash Management.
The first step is to automate your savings. You do this so you don’t fall victim to what’s known as Parkinson’s law. Applied in this context, this law says that without a plan, if your income rises, your expenses will rise to that same level within three to six months.
That’s why you want automation on your side, and to do that, you can set up a basic, but separate, savings, money market or even checking account. I call this a Wealth Capture Account. This is separate from your main account. You don’t want these funds commingled.
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Once you have this account set up and the funds are being automatically sent there, find an accountability partner to go through your purchases with you two to four times a month. Ask yourself: was there anything here I didn’t need to buy, or didn’t want to buy? Along with that reflection, wait 24 hours before making a sizable purchase. I do this to avoid making impulse purchases I’ll later regret.
Mindful Cash Management is about making sure you don’t spend more than you make and you have a general idea where you are spending your money. It takes you out of scarcity-based thinking, like you use in budgeting, and gets you thinking like a millionaire and beyond. You’ll be looking at ways to allocate your cash and your time to serve others and make an impact on the world.
#2: Don’t Bank on Accumulation
Multi-millionaires don’t buy into the philosophy that you need money to make money. They also don’t stick their money into a high-risk account and wait 30 years for compound interest to kick in.
They recognize that’s an antiquated notion that is not just limiting, but also dangerous. Waiting on accumulation abdicates personal responsibility, leaving us dependent on the financial institutions and hoping they’ll take care of us. Is that a place you want to be?
Instead of trusting the banks, millionaires think like the bank. They invest in assets that will produce cashflow for them rather than investing for accumulation. When you pour money back into your business or hire someone to free up more of your time, you’re investing in an asset that is going to flow cash out to you whether you come into work or not.
There are other options for creating cashflow producing assets. The 72(t) rule allows penalty-free withdrawals from IRA accounts and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. Here’s another option: What if you took your credit and partnered with someone who had expertise in real estate to purchase cashflow-producing properties?
There’s nothing wrong with using a bank, just like there’s nothing wrong with budgeting. But if you want to actually improve your financial health, it takes more than maintaining the status quo. It means taking proactive steps to think and act like the bank.
#3: Reduce and Transfer Your Risk
We’re all in store for financial surprises, but most of them don’t have to derail or harm us if we do the right things first. So, what’s the first thing? Create at least six months of savings.
Second, store the money somewhere like a Cashflow Banking account. Look for an account where you get a better interest rate and tax advantages than a savings account. An account that is not subjected to what the stock market does, or is tied up until age 59.5, like an IRA. You want to have all of these advantages but still be able to use the money whenever you need it.
Third, get an estate plan. We’re talking about a basic will and trust. Protecting your money, even from the grave, doesn’t have to be complicated, but it does have to stem from your wishes, so get them down on paper now while you’re alive. You want to protect your money if something were to happen to you, not have it be subject to a huge tax liability because you didn’t plan.
Fourth, get the right corporate structure. If you don’t have a corporate structure, you have a 400% higher chance of getting audited. You have unlimited liability as an individual. Setting up a corporation lessens those risks and is a better structure for saving on taxes.
Finally, set up your insurance properly. By that I mean: insure for the catastrophic things, never the inconsequential. Transfer the risk onto an insurance company so that you have peace of mind knowing you and your money will be protected should something crazy happen.
Will You Apply These Habits?
Habits are the result of actions we take repeatedly. With these three I just described, it doesn’t matter if you’re a student, retired, a business owner, or an employee. They will help you.
You don’t have to end up on your deathbed physically or financially. Get enough sleep, drink lots of water, move frequently, and eat nutritious foods. With your finances, stop treating your money with scarcity, reduction, and fear. Free yourself from limited results and structures that create scarcity, and use these habits to do what multi-millionaires do: protect and grow their wealth.