In order to break from the middle-class crowd and reach the levels of millionaires and billionaires, there’s one stereotype you need to dispel from your psyche completely, and that’s the one that says millionaires and billionaires didn’t earn their wealth.
For whatever reason, people like to say that the rich either inherited their money or got lucky – either from being in the right place at the right time with a certain investment or winning the lottery – but never from their efforts.
Once you dispel the myth that the rich didn’t earn their money, you’ll begin to understand that nothing is stopping you from becoming rich, just like self-made millionaires and billionaires. Hang around rich people enough, and you’ll pick up on some habits that almost all of them share. You’ll also pick up that none of these habits are complicated but, when combined, form a powerful formula for building wealth and maintaining it.
Here are the four main habits of the rich:
THEY THINK LONG-TERM.
Thinking long-term does two things for the rich:
- It takes the emotion out of their investment decisions.
- It helps them focus on assets that consistently grow wealth over time, no matter the market fluctuations.
By thinking long-term, the rich avoid the mistakes made by the masses. Susceptibility to the constant push and pull of the markets from the news, financial and social media, market data and the like results in rash short-term decision making. The rich don’t discount the importance of some economic data and metrics, but everything averages out in the long term, so there’s no need to get caught up in the short term.
Thinking long-term is why the rich allocate more to assets like real estate and private equity that have long lockup periods but offer above-market risk-adjusted returns insulated from short-term market volatility.
THEY INVEST, SAVE, AND REDUCE DEBT.
Investing is like a tree. The ideal investment bears fruit that can be sold to buy other fruit trees. A pretty palm tree does nothing for your wealth. Only productive ones will do. The fruit trees are not only valuable for the fruit they bear, but the ground underneath them will also appreciate over time.
You can compound your wealth by reinvesting the money from the fruit from the trees, but you can also accelerate the path to financial independence by infusing as much capital from your day job as you can to buy more trees.
The rich prefer productive assets like the fruit tree in our example because they can compound wealth through income (the fruit) and appreciation (the land under the trees). That’s why the rich are high on saving and avoiding Debt. This leaves more capital for growing wealth.
THERE IS NEVER A BAD TIME TO INVEST.
The rich invest in good times and in bad times. To do that, they focus on assets that have long-term viability and demand – in good times and bad. They avoid idle money because idle money is losing money because of inflation. The average inflation rate over the past 20 years has been 2.1%. Sidelining money allows inflation to eat away at it. There’s no rest for the rich’s money. It’s ALWAYS working for them.
THEY IGNORE THE NOISE.
What makes some of the top athletes in the world is also what makes millionaires successful. They ignore the noise. Like athletes who shut out negative noise from opposing crowds, the rich can ignore wild market swings. They aren’t fazed by market turmoil because of the way they invest. Top athletes focus on the game plan and don’t let external forces like the crowd distract them from the plan.
By investing in assets that are not correlated to broader market volatility and taking a seasoned approach towards diversification, the rich can keep their eyes on the road. They stick to the plan and don’t make drastic changes to the plan that takes them further away from their goal.
Assets like real assets and private equity that are non-correlated to Wall Street and lend themselves to being diversified across multiple markets, asset segments, and geographic locations are ideal for insulating portfolios from wild market swings. That’s why the rich gravitate towards these assets.
If financial freedom were an open-book test, anybody should be able to pass it. The answers are right in front of you. Just study the habits of the rich.
Maybe you were expecting more sexy or exciting insights into the habits of the rich, but that’s why the rich are rich. They don’t care about sexy, shiny, or exciting. They will stick with boring all day long if it gets them to their destination. Boring investments that the press ignores but generating income and long-term growth is all the rich need to achieve financial success.
If achieving financial independence means foregoing flashy purchases that impress only the neighbors, the rich have no problem with this. The rich could care less what others think. They’re more concerned about impressing their portfolio and all future generations who could benefit from their multi-generational wealth.