I was poor and now I’m in top 1% earners in my country, so I probably am competent to answer this question.
Poor people don’t think about future, they are fully concerned about the current moment. They have not experienced financial security don’t know how to achieve it.
They know very well what it means to wonder how to pay for groceries.
(Be sure to read Trevor's last blog New Stimulus Checks, Schools On Track to Reopen & Inflation here).
At A Glance
∎ Develop A Savings Strategy
∎ Build A Network of Wealthy Colleagues
∎ Create An Attitude of Gratitude
1. Rich People Pay Themselves First
For years, I struggled with saving money. I had been saving a portion of my salary only to spend money on some substantial item like repairing my car after I drove straight into a tree; or something lavish like gambling on the stock market.
I had been earning good money—but I had no support from my family. I had no assets at the beginning and a family of five to support.
My saving ratio was hovering about 3-4% point. Then I read "Start Over, Finish Rich" by David Bach and got one main takeaway from it: pay yourself first.
The idea seemed a bit preposterous, our budget was tight and we had no leeway to put away a significant chunk of salary. What difference would have made saving money at the beginning of the month and not at the end of it, from leftovers?
It did all the difference.
(my saving ratio)
In a few months’ time, my saving ratio skyrocketed to about 20%. Yet again I spent all of my savings when we bought our first house in 2014.
For several months, we were almost as poor as during my time as a student—having two kids and on welfare.
We survived on stipends, and student loans as our main sources of income.
But I rebuilt my savings and spent them once again on the house renovation. That was at the beginning of this year.
Still, I was able to save for those extraordinary expenses thanks to the “pay yourself first” rule.
I estimate that thanks to the difference between my previous saving ratio and the current one—plus the fact that my income grew by about 90% in the last few years—I ended up with equivalent of my 14 salaries in my pocket.
I spent about 10 of them, but I could spend them in bulk on expansive things that improved quality of our life; not on trivia.
2. Rich People Don’t Buy on Impulse
Alright—let’s be honest—I do very little impulse buying although I’m not completely immune to the shiny promises of marketing.
But I'm totally not interested in brands and sometimes it works against me. I've bought the cheapest laptop in the store and I discovered it is absurdly slow. I have a lot of opportunities to practice my patience with it.
But 99% of time, it serves me well. I bought an old Mazda 626 about 10 years ago. I put into it almost double the initial price (half of which after that accident with a tree).
But that's still much less than half the price of a new car and I know quite a lot of folks who exchange a car every few years. That Mazda is a small fortune "saved".
I don't follow trends and I don't chase shiny objects. I buy new items when I need them; not when I want them.
3. Rich People Work On Their Attitude
Seriously, it provides more benefits and more hard cash in your pocket than any technical tips.
We are programmed by our social environment to think all sorts of strange things about everything.
If you were lucky and you had the right social environment, you would believe good things about possessing and managing money and those beliefs would make you richer.
Most of us, unfortunately, got crappy programming. Even today, schools are doing very little to change this (kids are taught tons of facts, but there is not a single lesson in the curriculum about how to save money).
Advantageous beliefs and habits:
a. Debt is your enemy.
Debt compounds like the interest rate on your savings compounds. Uncontrolled, it will eat your finances alive.
Controlling this consumes so much of your brainpower and mental energy that it's best to avoid debt altogether, as a principle.
It's hard to put debt-avoidance in the context of habit, it's rather what you DON'T do: you never ever borrow money.
b. You are responsible for your net worth.
Not your daddy, not your boss and not your wife (yeah, I know she loves to spend, my wife loves it too; still, take the full responsibility).
If you don't accept this belief, everything that regards your money "just happens" to you.
Control over your cash flow is in most cases just an illusion (for example a car accident can wreck your vehicle, your body, your career and finances), but it's a necessary illusion, so you will act proactively to grow your wealth. Nobody will replace you at this job.
c. Be grateful.
And be grateful about more than merely your material possessions or the level of your salary.
Be grateful for everything. William W. Wallace, the author of "The Science of Getting Rich", prescribes gratitude as the way to stay in touch with a mystic element of the universe that provides abundance (his theories were a precursor to The Law of Attraction, ideas which were more sensible than the modern versions).
Science confirms that when the brain is positive, every possible outcome we know how to test for rises dramatically.
By "every outcome" they meant also net worth, savings, salary levels and chances for career advancement. And gratitude is a shortcut to making your brain positive.
A relevant habit: write down every morning three new things you are grateful for.
d. Pay with cash.
In the era of plastic money, we have a tendency to not see money as real... till it is too late and reality is biting you in your rear.
Credit cards provide the illusion of abundance when in fact each use of plastic money moves you further toward poverty.
To avoid this trap, pay for everything in cash. When you hand your cash money to someone else, it has a real feel. Your mind will not be lull into airiness.
A nice piece of belief is this: "If you cannot buy an item with cash, you cannot afford it." You should never take a loan if you don't have enough cash stacked to buy the item in cash in the first place.
e. Track your expenses.
Track all of them. I note down a sum when I buy bread or a bread roll. I register every single cent that goes out of my pocket in an Excel sheet. This discipline makes me more disciplined when spending money on anything.
The habit of tracking expenses provides you some much needed awareness of where your money goes.
Carelessness and ignorance are the allies of poverty. Impulse spending will decrease significantly when you have to register each of your impulses on paper.
f. Keep the company of rich/frugal people.
Attitude is contagious. When you spend time with people who wisely manage their money, you’ll become better at this yourself.
Of course, the ‘example’ is more effective when they actively mentor you, give you advice (and you actually take action to implement it).
But being around them is the basic requirement. Your copying mechanisms will work even in the background, it's how people are wired, and it’s how children learn life.
This activity may be easily habitualized. Simply find an appropriate group of people and engage with them on regular basis.
Play sport with them, volunteer with them or attend church services. Absorbing attitudes from others works better offline, but it works online too.
If you cannot think of an opportunity to find such people in your neighborhood, find them in Facebook groups or forums.
Michal Stawicki www.expandbeyondyourself.com
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