As a young child, did you ever dream of having $1 million in the bank?
I used to think that way, but my perspective changed over the years. $1 million is no longer a guarantee of financial freedom. For someone spending $200,000 a year in good health, $1 million won’t go very far during retirement. For someone else who spends $40,000 annually and has Social Security income, saving less than $1 million may be appropriate.
Numbers can change. The stock market moves up and down. You may be in a high-paying career now but could end up in a lower-paying profession (or vice versa).
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Instead, focus on things within your control, starting with your mindset.
Mindset, Vision & Values
Steven Covey’s 1989 bestseller The Seven Habits of Highly Effective People coined the term abundance mentality. An abundance mindset helps you:
- Create meaningful life experiences
- Pursue new, interesting opportunities
- Live a full and satisfying life
- Find happiness even amidst struggle
- Feel inspired and creative
True transformation requires an abundance mindset. If you foster an abundance mentality, you see the potential to move beyond present circumstances and have hope in a brighter future. By contrast, you are consistently concerned that there will never be enough when operating under the scarcity mindset. You may feel like a victim most of the time. Emotionally, an abundance mindset makes you feel empowered and engaged while a scarcity mindset causes frustration and feelings of being overwhelmed.
Once you have an abundance mindset, begin to craft a personal vision. This vision encompasses your ideal future life — the one you may not be living yet but hope to live within a few years. The vision should be congruent with your values. Next, turn your attention to bite-sized goals.
Goal-Setting for the Long Haul
You’ve likely heard of the SMART goal-setting framework before. If not, here’s a quick recap. Make your goals:
- Specific
- Measurable
- Achievable
- Relevant
- Time-Bound
Nonetheless, this SMART framework gives little attention to daily habits. Those habits will consistently drive you toward your goal or further away from it. If your primary goal is to run a half-marathon on June 2, your habit may be a daily run — with one or two rest days weekly. Likewise, if your goal is to increase your net financial worth by $50,000 this year, there are certain behaviors, such as automatic savings, that will help you reach the goal easier.
4 Wealth-Building Habits
Dr. Thomas J. Stanley thoroughly researched wealth-building behaviors and revealed the results in The Millionaire Next Door. In his 1990s survey of over 14,000 affluent American households, Stanley concluded that households can become wealthy without six- or seven-figure salaries.
Dr. Stanley passed away in a car accident in 2015, and his daughter Dr. Sarah Stanley Fallaw recently published The Next Millionaire Next Door. Dr. Fallaw confirms that many of the behaviors identified in Stanley’s research continue to play a significant role in wealth accumulation now, and behavior change is possible.
She finds that frugality, diligence, hard work and time management are more important than salary alone. Choice of spouse, career and location are also influential.
Habit No. 1: Frugality
Frugality means you spend less than you earn. Most millionaires are able to ignore the temptation to buy a bigger house, newer car, latest tech gadget and so on. They may notice what other people are buying but don’t go on a shopping spree themselves.
Habit No. 2: Discipline
Self-made millionaires are also disciplined. They choose moderation over extremes. If they buy a luxury car, it’s often a used one. You’re unlikely to find them living in the most expensive, elaborate house on the block. As investors, many millionaires don’t try to time the market. Slow and steady wins the race.
Habit No. 3: Hard Work
Another defining characteristic of many millionaires is their work ethic. Money wasn’t handed to them on a silver platter. It’s incredibly difficult to build long-term wealth yourself if you’ve relied solely on handouts from parents or other family members. The adage “from shirtsleeves to shirtsleeves in three generations” rings true: A sense of entitlement quickly erodes family wealth. Millionaires profiled in Dr. Fallaw’s book are willing to roll up their sleeves, launch businesses or stick it out in high-paying careers until they’re financially independent.
Habit: No. 4: Time Management
Effective allocation of time, energy and resources is another guiding trait of self-made millionaires. Even if hiring an outside financial adviser, a millionaire still monitors the family budget and ensures the investment portfolio matches the level of risk taken. He or she takes the role as household CFO seriously but may also rely on a professional with deep expertise in tax mitigation, charitable giving or college saving strategies.
Above all, millionaires are able to transform income into wealth. They create a personal vision, evaluate values and interests, set goals and actively pursue those goals. They are also conscientious, striving to become a better version of themselves.
Do You Have What It Takes?
Do you share one or more of the traits profiled above? If not, what behavioral changes can you make? Take this quick quiz and see how your financial outlook impacts your ability to build long-term wealth.
-
Dow Adds 516 Points on Broad Optimism: Stock Market TodayEasing trade war tensions and promise from early earnings reports has investors looking on the bright side to start the week.
-
Dave Ramsey Tells Us the Biggest Retirement Mistake You Can MakeThe talk-show host, author and podcaster tells Kiplinger what people can do to ensure a happy retirement.
-
I'm a Wealth Adviser: These Are the Pros and Cons of Alternative Investments in Workplace Retirement AccountsWhile alternatives offer diversification and higher potential returns, including them in your workplace retirement plan would require careful consideration.
-
I'm a Financial Planner: If You're Within 10 Years of Retiring, Do This TodayDon't want to run out of money in retirement? You need a retirement plan that accounts for income, market risk, taxes and more. Don't regret putting it off.
-
Five Keys to Retirement Happiness That Have Nothing to Do With MoneyConsider how your housing needs will change, what you'll do with your time, maintaining social connections and keeping mentally and physically fit.
-
Budget Hacks Won't Cut It: These Five Strategies From a Financial Planner Can Help Build Significant WealthCutting out your daily latte might make you feel virtuous, but tracking pennies won't pay off. Here are some strategies that can actually build wealth.
-
To Unwrap a Budget-Friendly Holiday, Consider These Smart Moves From a Financial ProfessionalYou can avoid a 'holiday hangover' of debt by setting a realistic budget, making a detailed list, considering alternative gifts, starting to save now and more.
-
Treat Home Equity Like Other Investments in Your Retirement Plan: Look at Its Track RecordHomeowners who are considering using home equity in their retirement plan can analyze it like they do their other investments. Here's how.
-
Why Does It Take Insurers So Darn Long to Pay Claims? An Insurance Expert ExplainsThe process of verification, investigation and cost assessment after a loss is complex and goes beyond simply cutting a check.
-
Two Reasons to Consider Deferred Compensation in the Wake of the OBBB, From a Financial PlannerDeferred compensation plans let you potentially lower your current taxes and help to keep you out of a higher tax bracket. It's important to consider the risks.
