15 Ways Millionaires Manage Their Money That Make Them Richer Millionaires, or at least the ones who keep their money, know the difference between wants and needs.
By John Rampton Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
It's no secret that millionaires have different habits, qualities, and ways of thinking than the average person. Those habits are most prevalent when it comes to the ways that they manage their money. They have a unique way of thinking that actually helps them earn even more money by making wise financial decisions like the following 15 ways that they manage their money:
They’re not impulsive
How many times have you made an impulse decision while at the grocery store? Or how about when you are on Amazon? It's common for most of people to make a few impulsive decisions when making purchases. Millionaires, however, have the ability to delay gratification and hold back on making impulsive decisions.
There was a famous study conducted by Dr. Walter Mischel at Stanford in the 1960s that backs up this claim. Dr. Mischel gave preschoolers the choice of eating one marshmallow whenever they wanted. The other option was to wait until the adult came back into the room. If they could stand to wait until the adult came back into the room, they would received two marshmallows. Dr. Mischel has continued to follow his subjects through the years, and he discovered that those children who could wait for the marshmallows in order to receive two marshmallows instead of only receiving one, "have a lower BMI, lower rates of addiction, a lower divorce rate and higher SAT scores."
Know the difference between wants and needs
Millionaires also know the difference between wants and needs. We all have moments when we would like a new house, pair of shoes, car, or office. But, are they necessary? Or, do you just want that new luxury car? Sure that car is powerful and would great in your driveway. But, it's not a necessity. Instead of spending money on things that aren't practical, millionaires put that money towards essential items that will continue to increase their wealth.
Maybe that's why 61% of people who earn more than $250,000 per year purchase the same vehicles that we do.
Focus on the long term
As Timothy Sykes, the Penny Stock Millionaire, says in Entrepreneur,
"Long-term goals take a minimum of one to five years to accomplish. Long-term goals are excellent motivators. They enable you to look beyond the moment and put into perspective why you are spending your time today as you are."
Your daily tasks should connect to your long-term goals, and if they do not, your goals need to be adjusted in some way. The adjustment may be altering your tasks in some way, or possibly cutting out or reducing non-essential tasks and adding some task that will benefit you in the future.
Have multiple sources of income
After establishing some financial security, millionaires begin to look for other ways to bring in money. Why? Because they realize that their main source of income could suddenly dry-up. To avoid a possible loss of revenue, a millionaire will establish multiple sources of income that generate cash flow as a backup plan.
Automate investment
There are robo advisors and other ways to automate investments, such as deducting percentage of your paycheck and placing it into a e-cash retirement account, but millionaires also invest so frequently that it's becomes a habit. They know how and when to take advantage of an opportunity, as well as how much to invest, seemingly without blinking an eye. But they have practiced this investment strategy often enough that they gain a definite knowledge about investment workings.
ShutterstockFollow a budget
By following a budget, millionaires can see how much money is coming in and how much is going out. This allows them to create a spending plan so that they can afford the necessities and remove wasteful expenses. There has been at least one study that says many wealthy people do not have a budget, per se, but the very wealthy know, and keep track of where their money is being spent.
Related: 3 Realities That Make Personal Finance Different for Entrepreneurs
Are prepared for emergencies
Millionaires have a rainy-day fund set aside. They realize that there may be time when they'll have a crisis, like losing their job or an unexpected family death. Instead of borrowing money, they have the money saved up to support themselves until the crisis is over. Many disasters can be averted by being prepared with an emergency fund. I personally recommend that you have 12 months cash sitting in the bank so that if all shiz hit the fan, you're good.
Only invest what in what they understand
Warren Buffett and the legendary stock investor Peter Lynch have offered the advice that you should "invest in what you know." It's a trick that millionaires have embraced because when they understand how a company generates income and profitability, they have a competitive edge. They're aware of the risks and opportunities.
Related: The 6 Attributes Shared by Young Millionaires
Keep track of expenses
Do you know how much money you're spending on your expenses? If you don't, start tracking your daily, monthly, and yearly expenses - just like millionaires do. You'll quickly realize that you're wasting money on items that aren't needed or can be purchased at a better rate.
Live below their means
It's no secret that wealthy individuals live either below or within their means. For example, Warren Buffett still lives in his Omaha, Nebraska home that he purchased in 1958 for just $31,500. Former Microsoft CEO Steve Ballmer was known to fly commercial. Even though they could have owned a mansion or private jet, they opted to save their money for necessities and not luxury items.
Willing to make sacrifices
So what if you're driving around in a 2000 Toyota Camry. You realize that eventually, like within the next two years, you'll be able to purchase a new vehicle because you'll have the means to do so. That's how millionaires think when it comes to managing their money. They'll make temporary sacrifices when it benefits the bigger goal. I personally was worth millions and driving around a 2006 salvage title Hyundai Sonata till a a year ago. Make sacrifices today to live better tomorrow.
Related: 5 Words Millionaires Understand Better Than Others
They don’t get into debt
Millionaires don't allow themselves to get in debt. They don't borrow any money and avoid using credit cards if they don't have the money to pay the card off - unless it's an investment to improve their business or start a new company. In other words, if they don't have it, they're not going to spend it. They do without - rather than spend what they don't have.
ShutterstockThey get financial advice
Millionaires know their strengths and weaknesses. Instead of spending the time and money to fix their weaknesses - they ask for help - especially when it comes to money management. Just because they built a social network or gadget, doesn't mean that they know how to invest or save their money. They ask a financial advisor or accountant for help.
Related: 5 Things Millionaires Do That Most People Don't
Educate themselves
Formal education is not a prerequisite for millionaires. Bill Gates, Mark Zuckerberg, and Amancio Ortega all earned their fortunes without obtaining a college degree. Tai Lopez is well known for bragging about not having a formal education, yet he will be the first to tell you about self-education - Lopez reads approximately a book a day. Like most wealthy individuals, each of these have used their specialized knowledge and continue to learn how to become more successful through self-education.
Run the numbers before making a decision
I'm not talking about doing mathematical equations that you did back in your trigonometry class. Just basic addition, subtraction, multiplication, and division before making any financial decisions. For example, if you have an older vehicle that needs some repairs, a millionaire would compare the costs of repairing the car to purchasing a new vehicle. Then, the decision will be based on whatever's more cost-effective.
