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What are the habits of people with financial freedom?
You Won’t Get Rich Off a Salary Alone
Having a salary is nice, but if you want to have financial freedom, you will need a lot more than a salary. Jeff Bezos famously had a salary of around $80,000 as CEO of Amazon all the way up until he stepped down in 2021. Of course part of not taking a raise since the mid 1990’s was his schtick to show Amazon shareholders his commitment to the company, but clearly Bezos was well aware that in the grand scheme of things, a salary won’t make anyone rich.
The truly financially secure are always growing their skill sets along with their money. If you want to be rich, set a goal for yourself to make a thousand dollars within the next month doing something you have never done before. You can do it. Michael Jordan was at the peak of his basketball career when he walked away to try something new, and in his 30s, he tried baseball and made a minor league roster. How amazing is that? Successful people aren’t relying on a paycheck, and they are always growing in other areas of their lives.
Inflation Steals Your Wealth
Much like a shark needs to keep swimming to keep oxygen rich water flowing over its gills or else it will suffocate, idle money is also slowly dying. That doesn't mean you shouldn’t have a little money sitting in savings, or even a Tony Soprano sized duffle bag of cash under your bed if that’s your thing, but the financially savvy person is well aware that money is either growing or shrinking. The majority of your money should be put to work.
This is especially true now. We know 2022 is going to be a bad year for inflation. But the good news is that a lot of assets actually thrive in an inflationary environment. Find one of them and get in the game.
Buy Assets, Not Liabilities
This may be the most important one. As the pandemic is winding down, many of the usual suspects in Washington have chimed in about how the wealthy have become much wealthier recently, as if we are playing some sort of rigged game. It’s not a rigged game, some people just put themselves in a better position to succeed.
Living paycheck to paycheck makes you fragile. If one thing goes wrong, you will find yourself in trouble. Having some money stashed away makes you strong, or robust; that is, able to withstand some disruption, like a lost job or missed paycheck, but only for a finite amount of time. But robustness isn’t the opposite of fragile. The opposite of fragile is antifragile, something that actually gets stronger or benefits from taking a beating.
Those with a well diversified portfolio of assets at the beginning of 2020 were bound to have something that grew exponentially during the pandemic. And it didn’t have to be anything complex or sophisticated either, a few shares of Costco was all you really needed.
For those with assets, disruption is an opportunity, and those who are financially prepared are very handsomely rewarded. If you missed out on the pandemic related windfall, don’t worry, another golden opportunity is always right around the corner.
Never Spend More Than You Make
Acquiring consumer debt is the number one way in which you can guarantee that you will never become financially free. Those on the credit card hamster wheel will lose money through interest and also be unable to get business loans or mortgages, which just keeps them with no choice but to spin that wheel faster and faster.
Build the habit of living within your means and never spending more money than you make. You don’t need expensive things to make you happy. Most people putting high priced Rolexes and Louis Vuitton bags on their credit cards are miserable anyway. If you really want a Rolex, make a deal with yourself that when you save up ten grand, you will spend half and buy that Oyster Perpetual you like. By the time you have earned the money with your own efforts, you will probably realize you don’t really want it anyway, and if you do still want it, you’ll truly appreciate it that much more. It is the exact opposite of the reason why most lottery winners eventually end up broke.
Pay Yourself First, Always
This one is also a habit more than a rule. Few wealthy people become wealthy from an inheritance. Nor do many get there from earning a big paycheck. Most wealthy people became wealthy by building the habit early on of paying themselves first.
When income comes in, the wealthy and financially savvy always take some and grow their net worth with it. Yes you have to pay your bills, but the first bill you pay should be to yourself. Of course you need to make sure you are paying your electric bill, car payment, rent, credit cards and all the rest, those things are important, too. But consider the payment to yourself the hidden and most important trade line on your credit report.
Use Compound Interest
The magic of compound interest is the easiest tool to use to grow your wealth. As your money starts growing, every day it picks up a tiny, almost imperceptible, amount of speed. Not much at first, but eventually it becomes a boulder rolling down a mountain.
Don’t just apply compound interest to your money either. Use it as a metaphor for all areas of your life. Physical fitness, education, relationships, whatever. The truth about personal improvement that is not always intuitive is that it works a lot like compound interest. Success begets more success.
Let’s say you want to learn about cryptocurrency, for example. Just read one reputable article, and you’ll be a tiny bit smarter. Read one article a day for thirty days, you won’t be thirty times smarter, you will be about a thousand times smarter. That’s compound interest.