7 Financial Habits of the Rich People
Financial habits play a major role in making people rich or poor. Finance is one of the major causes of stress among adults. It keeps people awake at night, causes strained relationships and creates difficulties in families. A PWC financial wellness survey showed 65% of women and 52% of men said that financial matters cause them the most stress.
Financial literacy creates a stronger foundation for individuals and their families. Financial habits can help people create wealth with proper planning and methods. Here’s a look at financial habits of the rich people that help them amass fortunes with their day to day lives.
1. Establish Financial Goals
Studies have shown that most people don’t have financial goals. As obvious as it may seem, a lot of people tend to ignore their financial goals. They do not set goals for their income, paying their debt or having an emergency fund etc.
Rich people tend to make consciously better choices when it comes to their finances. They usually understand the repercussions of these financial decisions on their lives and their families. An illustration of some of the financial goals of the rich people:
Short term financial goals: 1 to 2 Years
Pay off housing debt.
Create an Emergency Fund
Vacation and Travel
Mid term Financial Goals: 2 to 5 Years
Building a Retirement Corpus
Starting a Business
Buying a new house
Long term Financial Goals: Over 5 Years
Children’s College Education
Paying off all debts
Retirement and mortgage funds
Where does your money go? How much are you spending on food, travel, outings, healthcare etc? Here’s a break-up of how an average person spends his money:
32.9% goes towards housing
17% goes towards transportation
12.5% goes towards food
11.3% goes towards insurance
7.8% towards healthcare
5.1% on entertainment
3.3% on clothing
3.2% on cash contributions
2.3% on education.
So, do you track your expenses and budget them. Sometimes, it is possible to go overboard with shopping, outings and spend way too much on activities that don’t really add up in the long run. Wealthy people and millionaires track their spending carefully. They don’t usually do a lot of impulsive expenses, but are well calculated in how they spend their money.
Your earnings don’t make you rich, your savings do. The fundamental principle of building wealth is to earn and save enough money so that it can build into something substantial.
The difference between rich and the poor people often lies in savings. Rich people save first and then spend. But others spend first and then save what is left. One of the important principles of saving is to start as early as possible. Some who started saving $2,000 at the age of 25 will have to save $6,000 at the age of 45 to retire at 60 years with 6% annual investment.
The rich people invest money, while most others live paycheck to paycheck. A financial study claimed 42% of American workers live paycheck to paycheck., including 25% of those earning more than $100,000 per year.
4. Understanding Assets & Liabilities
One of the most important habits for building wealth is understanding of different asset classes. The assets could be investment vehicles like real estate, bonds, mutual funds, bank deposits, gold, silver, bitcoin, shares, business etc.
The rich people have a good understanding and distribute their wealth in different asset classes. Some of the asset classes could yield high returns, but will be riskier than others. Financial education assimilation of information to invest your wealth appropriately.
Assets are things that can bring you money. They bring you passive income. For e.g. a rental house that brings money is an asset. Liabilities are loans and debts where you owe money. It decreases your cashflow.
Rich people have a habit of building high value assets that create a good cashflow for them. They avoid debts at high interest rates as it hurts their cash flow. One of the best ways to build wealth is creating assets that bring in passive incomes & provide ROI in the long term.
5. Plan for Retirement
Rich people create long term wealth. They use their funds to build passive income and retirement funds which they can leverage for 30 or more years. Like savings, planning long term savings like children’s education, marriage and pension works best when you do it early.
To create a pension of $5,000 per month for 30 years, you would need to have $1,060,751 in retirement savings, with 6% annual investment returns and say 2% inflation.The earlier you start saving, the better it will be for your finances and long term wealth building.
At 45, you’ll need to set aside three times as much each month to retire comfortably as someone who started at 25. Starting early is half the battle won.
6. Daily Todo Lists
Rich people work towards creating a long term value proposition. In his book, Rich Habits, Corley describes personal habits of millionaires that make them rich. Corley interviewed millionaires and asked them about to-do lists, 81% of rich people said they kept to-do lists, compared to 19% of those in poverty.
Rich people have a habit of building great personal habits like todo lists. It helps them master their day. They also like to wake up early, work hard, build good networks and educate themselves with skills that are in demand.
Wealthy people spend less on entertainment and more on their education. They adopt an attitude of self improvement and delayed gratification. They are not merely chasing instant fads and fancies, but devoting their time to build something that pays rich dividends with time.
7. Consistent & Committed
Wealth is a reflection of the value one brings to the table. People who do something wonderful and remarkable in the world attract money. In a way, when you are devoted to doing something well and serve other people, wealth becomes a by-product.
Rich people are consistent with their habits. They create value with their efforts and the work they do. Self created wealth is a measure of certain competencies. It is also a reflection of how you are creating value for others. To be rich, you have to be consistent on your principles and flexible on the execution.
Self made rich people constantly learn, improve themselves and evaluate the world around them. They understand that money is never permanent & goes to the person who brings the most value to it.
The 6 Most Common Financial Mistakes Made by SMBs
Financial mistakes made by SMBs have had a tremendous impact on their business. Many companies never reopened after the lockdowns. 2020 was the worst year for businesses around the world in most sectors. The US economy was hit hard, like most other economies and shrank by 3.5% in 2020. The pandemic impacted the economic growth for the US to its lowest since World War II. The financial lessons are an integral part of how businesses need to be managed. Here’s a look at the most common mistakes made by SMBs, which can have serious impact on their business:
1. Value of Money
The value of money is critical to how a business is managed. The financial assumptions for interest rates, borrowing, working capital, inflation, return on investment, financial ratios etc. are the basics of managing a business. Many companies fail to understand the value of money they use and pay a heavy price at the end.
Good companies learn to use the capital wisely for building a business. They learn about the cost of ownership for undertaking projects by uncovering the details of each element. For e.g. the repercussion of a construction project delayed by every month can be calculated tangibly say $110,000 monthly, so for a six month delay, the business will have an impact of $666,000. The best entrepreneurs learn how money generates value for their business.
2. Understanding Inventory & Fixed Assets
Capital costs are the basis on which companies can optimise their operational costs. Many companies pay heavy penalties for high capital costs in fixed assets and inventories. Businesses have to figure out whether they need to invest upfront in fixed assets or lease them. This analysis is crucial for cash flow analysis. Some fixed assets might not have a long term value for a business, it could be rented for more beneficial returns. For e.g. heavy machinery that is not part of core business can be rented.
The effective use of depreciations can be used for offsetting profits in a business. However, using fixed assets that depreciate fast can also erode the networth of a business. Companies need to do their due diligence on how they need to use their capital for fixed assets and inventory. Excessive procurements of either inventory or fixed assets, which don’t yield can have negative consequences for a business.
3. Maintenance Costs
A lot of businesses plan for their capital costs, employee expenses and operations, but fail to calculate the maintenance costs correctly. They underestimate the maintenance costs for their business, leading to negative cash flow situations. Maintenance expenses are a major source of monthly outgoing costs. The servicing costs for maintenance of office equipment, infrastructure and facilities need to be carefully evaluated.
The budget allocation and monthly outgoing maintenance costs planning is crucial to smooth
Business operations. Unaccounted for maintenance costs are one of the major reasons for negative cash flow in a business. But when capital purchases, inventory and maintenance expenditures are well planned, things can be controlled a great deal in most situations.
4. Tax Planning & Obligations
The taxes are one of the major sources of outflow for a business. If taxes are not taken care of, they can create a lot of hurdles in a business. Taxes need to be evaluated for all essential elements in a business. For e.g. taxes spent on purchasing fixed assets will be different than regular expenses. Employee taxes will need to be planned as per the location of business. There are also different types of income taxes applicable on company revenue from operations.
Tax planning and budgeting can have a big impact on spending for a business. The profit and loss is impacted on how well a company structures its operations and optimises its spending on taxes. Many SMBs often pay a heavy price for the lack of proper knowledge in taxation and financial matters. Expert guidance can be soughted to avoid penalties, tax structuring for sales, purchases and payroll taxes as per laws of the land.
5. Maintaining up to date Accounting
Many SMBs fail to maintain upto date accounting for their business. They are playing a catch up game to file their taxes, manage compliance and accounting. But this can cause penalties, present the wrong picture of the business and underestimate the liabilities. When businesses are managed with upto date accounts, it helps to plan spending, see real time cash flow situation, bills, expenses, taxes owed and evaluate the overall picture of the business.
A lot of businesses are surprised when they do their taxes at the end of year. They miss important filing deadlines, statutory deductions and often pay hefty penalties. The best managed businesses are proactive with their bookkeeping and accounting to keep things in check.
6. Hidden Costs
The hidden costs of a business are detrimental to its growth. Companies that tend to overlook and don’t account for these costs end up with negative cash flows.
Take for e.g. an online retailer pays a credit card processing fee of 2.9% and additional $.25 for Visa cards. The business needs to integrate these costs at the time the customer purchases are made, otherwise this will have a net effect of more than 3% on the company cash flow. The company could also be paying hidden costs for many of its operations and employee expenses that are uncovered only after significant cash has been burnt.
Top companies are proactive in their planning and take into account most of these elements. Businesses need to have an in depth understanding of all the elements in their profit & loss, balance sheet & cash flow reports. Financial metrics and details are important for uncovering growth opportunities for a business. Good companies minimise the hidden costs by methodical analysis, mitigate surprises with proper budgeting and detailing. These companies also use integrated accounting software and business management tools to help them understand their business operations more efficiently.
The Biggest IPOs Ever! Jack Ma’s Ant Financial Set to Break the Record
The record for the biggest IPO ever currently belongs to the Saudi state owned oil giant Saudi Aramco. It’s IPO in December 2019 was the biggest IPO till date. The Saudi company raised over $29.4 billion in the IPO. The company was valued at $1.7 trillion then. Jack Ma’s Ant Financial is all set to break the record as it plans to raise over $30 billion from its IPO on the Shanghai Stock Exchange & Hong Kong stock exchange. Continue reading “The Biggest IPOs Ever! Jack Ma’s Ant Financial Set to Break the Record”
5 Things That Make You Indispensable At Work
The recent Corona pandemic has exposed the vulnerabilities of young professionals. The US market saw an unprecedented unemployment rate of 14.7% in April 2020, which dropped to 11.1% in June 2020. India had an unemployment rate of 23.5% in April 2020 and by June 2020 it dropped to 10.99%. While the unemployment rate shows improvement and recovery, it leaves employees feeling overwhelmed and stressed.
Continue reading “5 Things That Make You Indispensable At Work”
7 Business Opportunities for Entrepreneurs in the Post COVID World
The Asian Development Bank(ADB) reports that world wide losses due to coronavirus pandemic could be in the range of $5.8 to $8.8 trillion equivalent to 6.4 percent to 9.7 percent of the global GDP. The World Bank baseline forecast envisions a 5.2 percent contraction in global GDP in 2020. It will be the deepest global recession in decades according to the World Bank.
Continue reading “7 Business Opportunities for Entrepreneurs in the Post COVID World”
8 Life Changing Lessons from The Virgin Way by Richard Branson
How to Improve Your Powers of Observation
The powers of observation can be defined simply as your ability to notice & pay attention to things around you. Some people are gifted with the ability to notice things deeply and gain deep insights just by observing their surroundings.
Continue reading “How to Improve Your Powers of Observation”
Decisive By Chip & Dan Health : How to Make Better Decisions
How to Build Mental Resilience with Microsteps!
Arianna Huffington has a simple solution for business executives and professionals who are busy called microsteps. Microsteps are small activities that can be done in 1 to 3 minutes each day. These are science backed and personalised activities that can help people. A microstep can create a strong impact for creating healthier, relaxed and peaceful state of mind for people.
Continue reading “How to Build Mental Resilience with Microsteps!”