Managing money effectively is a key success skill. Successful people make the decision to become effective with money, many of them early in life. Like any area of life, it is important to educate yourself about the threats and challenges in the world. Taking the time to master a few key principles will pay off for years to come.
1. They don’t overspend; they live on less than they make.
Living on less than you make is an essential money management skill. Some of the world’s wealthiest people have taken this principle to heart. For example, Sir John Templeton, a legendary investor who became a billionaire, saved 50% of his income even when he grew up with limited means. If that is more than you manage, don’t worry! You can reach financial success by saving 10-15% of your income.
Tip: Learning to live on less than you earn takes time. Start by looking for ways to save money: 55 Practical Ways To Save Money Efficiently.
2. They don’t fixate on price; they understand the importance of value.
The price you pay for an investment, a meal or piece of clothing is only part of the story. Successful people also think about the value of that good. For investments, they consider the prospects for the investment growing in the future. For personal items, they look for high quality products that will last. For example, a well made pair of business shoes may cost $200 or more but these shoes can last for years with proper care.
Tip: Buy high quality products that will last for a long time.
3. They don’t waste cash on fees and interest; they know how to manage their banking
Carrying a balance on your credit card is incredibly expensive and sadly common. According to CNN, the average American household carried over $15,000 in credit card debt. Successful people also keep an eye on their bank fees–how much they pay for ATM use and other transactions. These fees are easy to avoid with planning once you understand how the system works. Simply reviewing your financial accounts for 5-10 minutes each month is all it takes to understand your fees.
4. They don’t forget to adjust their finances after big changes in life.
Did you get married recently? Is your spouse referenced in your will? These are some of the points that financially successful people manage effectively. While you can automate a great deal of your finances, it is vital to make adjustments when your life and family circumstances change significantly. Sitting down by yourself (or with a financial expert) at least once a year to review your life and financial plan is an excellent way to stay on top of important changes.
Learn: Arrange your finances for the long term with estate planning.
5. They are not satisfied with a stagnant income; they look for ways to increase their income.
Some people never ask for more money or simply settle for 1-3% increases. Unfortunately, that rate of income growth means you are simply standing still–inflation is slowly eating away at your purchasing power. Instead, successful people look for ways to earn more income. Increased income gives you more options for personal enjoyment, more capacity to give money, and a sense of security.
Successful people take daily action to increase their income. For example, they take a course to improve their skills or they contribute ideas to improve the productivity of their companies. They also know how to ask for more money.
6. They don’t ignore financial statements.
Reaching financial success requires some slow and steady habits. That includes forming a habit to monitor your financial statements. Successful people set a time each month–30 to 60 minutes–to review all of their financial accounts: investments, bank accounts, credit cards and more. When they detect an error or omission, they take immediate action.
Tip: Set a recurring reminder in your calendar each month to review your financial accounts.
7. They don’t take foolish risks in money.
Warren Buffet is often quoted as saying, “Rule number one is never lose money.” All investments carry some measure of risk (and therefore the potential to lose money). That said, successful people use two powerful tools to avoid losses. They understand the value of insurance to control risk (e.g. home, auto, and life insurance) and the importance of asset allocation.
Remember: If it sounds too good to be true (or if you don’t understand how it works), slow down and start asking plenty of questions.
8. They don’t pretend to understand everything when it comes to money.
The world is a vast and complex place–successful people know and deeply understand this truth. When it comes to money, there is a lot of information out there. That’s why successful people like Warren Buffet understand their limits and focus on their strengths.
Tip: Review your knowledge of money and investments. If you are just starting out, read one or two classic personal finance books. Or read 9 Can’t-Miss Secrets Behind Warren Buffett’s Wealth for more insights from one of the world’s most successful investors.
9. They don’t transfer responsibility to experts.
Successful people do seek out the advice of experts, yet they never yield responsibility. For example, it is reasonable to seek advice from a tax accountant in planning your financial affairs. However, successful people take the time to ask questions and evaluate the person providing advice to them.
Tip: When seeking advice from professionals like accountants and lawyers, ask questions and seek to have the advice explained to you. Otherwise, it is difficult to act on the advice.
10. They don’t let the pursuit of money overcome other values.
Seeking financial success is a valid goal. Significant financial resources give you more options to give to causes you believe in. It also means improved access to technology, health care and leisure. However, successful people understand that financial success is only one aspect of a successful life. For example, neglecting health in the pursuit of money is a poor strategy.