Everyone who is stuck in the day-to-day grind of modern life wonders about what it takes to become a millionaire.
Are they born into it?
Is it talent?
Is it luck?
Despite all the various reasons that people come up with for how to be a millionaire, the true answer is surprisingly simple: smart money management.
Millionaires follow a few simple life rules that help them to get ahead of the pack and stay there. While these rules aren’t guaranteed to make you a multi millionaire, they can give you the best shot at making the most of your life. They include:
1.) Investing In What You Know
2.) Rainy Day Fund
3.) Avoid Leverage
4.) Be a Smart Buyer
5.) Avoid Interest
And who knows, they just might lead you to a life of comfort and luxury as the next self-made millionaire.
1.) Only Invest in What You Know
There are so many stories about people getting rich in areas that sound exotic and complicated that we are tempted into assuming that we need to look outside our everyday experience for things to invest in.
This actually couldn’t be more wrong.
Millionaires make their fortunes by investing in areas that they know extremely well. Because they understand all the ins and outs, they are able to spot the good and bad investments, and ensure that their money is always in the best place to grow.
When it comes to investing stick with what you know even if it seems boring, and ignore all the fancy and exotic sounding investments that you have little understanding of.
2.) Always Have a Rainy Day Fund
You should know that nothing can ruin your plans and set you back faster than an emergency that you are not prepared for.
Needing to find cash quick for an emergency means putting plans on hold and taking on debts and risks that you are better off avoiding. That is why millionaires always have some emergency funds set aside for a rainy day.
This way when life throws millionaires one of its inevitable curve balls, they can deal with the problem and get back to work without missing a beat.
Always have a rainy day fund on hand, and when you spend it down after an emergency be sure to fill it back up again right away.
3.) Beware of Leverage
Some people think that the only way to get ahead is to borrow a lot of money to magnify your gains.
However, millionaires know that nothing eats into your wealth faster than debt and too much leverage.
When times are bad, that leverage will mean that your losses are magnified at a rate greater than your gains would be, so you are always losing faster than you are winning. Millionaires take the slow but steady path to wealth creation instead, and only use debt and leverage when it is absolutely necessary.
There are no shortcuts to becoming a millionaire, so don’t try to boost your gains by taking on too much leverage.
4.) Become a Smart Buyer
People see millionaires with their nice clothes, fancy cars and lavish parties, and assume that millionaires just throw money around like they don’t care.
Millionaires are actually very keen buyers who are always making sure that they are getting the best deal possible. They can afford to buy nice things because they never pay more than they need to and they are always getting the lowest prices and most added benefits.
Don’t feel like you are being a penny-pincher when you take the time to shop around for good deals, you are in good company with many millionaires who saved their way into riches.
5.) Avoid Interest
It’s not really the debts that cause people the most problems, it’s the interest.
Interest payments eat away at your wealth at a steady pace and keep you from getting ahead with your saving and investing.
This is why millionaires do their best to avoid high interest rate debts. Debts like credit cards and consumer financing always come with a high interest rate, and these are generally used for the things that you are better off saving for than taking on debt to buy.
Be smart like a millionaire and avoid paying interest whenever possible. Save for your big purchases instead of using your credit cards or consumer loans, and only take on debts that help you to build more wealth by investing in yourself.