This post may contain affiliate links which may compensate us based on your interaction. Please read the disclosures for more information.
Want to be wealthy? Living within your means is one money habit that can help you make that happen. Find out some others here. [[{“value”:”
Image source: Upsplash/The Motley Fool
For most people, becoming wealthy is possible. But it will require adopting some money habits as early in life as you can and sticking to them over the long term.
Not sure what to do if you want to end up rich? Here are four habits to adopt right now that can set you on the path to financial success.
1. Living within your means
There is one thing that you absolutely must do if you want to be rich: You need to live within your means. That means spending less than you earn. It doesn’t matter if you make $40,000 a year or $400,000 a year — if you spend more than you make, you are never going to end up wealthy.
Of course, the higher your income, the easier it is to cover your costs and still have money left over. But plenty of people with modest incomes still end up rich. The key is to keep fixed expenses (like housing and car payments) to no more than around 50% of income, limit discretionary spending to 30%, and save the rest.
2. Using credit cards wisely
Credit cards are not something to be scared of if you hope to become rich, despite what some financial experts will tell you.
It is 100% true you should avoid credit card debt if you want wealth in your future. With the average credit card interest rate coming in at 21.47%, carrying a balance makes building wealth a whole lot harder.
But you can and should use credit cards without ever paying a dime of interest. Charge only what you can afford and pay off your balance in full each month. Doing this can help make you richer in two ways.
It can help you to earn a good credit score that opens doors for you. This could make doing other things, like buying a house, a lot more affordable.It can allow you to earn rewards that reduce the cost of your purchases. If you get a card offering 2% cash back and charge everything you can, you effectively get a 2% discount on all your purchases. That’s extra money you can use for your financial goals.
3. Getting loans only for the right reasons
You also shouldn’t be afraid of using other kinds of debt as a tool if you want to be rich. For example, getting a mortgage could help you buy a house — and homeowners have a net worth that’s 40 times higher than renters.
While some of that discrepancy is explained by the fact people with stable finances are more likely to buy a home in the first place, homeowners undoubtedly benefit from the fact their mortgage is a type of forced savings as each payment helps them build equity. Plus, they benefit from property appreciation that grows their wealth over time.
You can also use loans in other smart ways, such as to help you start a business. But it’s a good idea to avoid borrowing for anything that doesn’t increase your net worth over the long term, like vacations or weddings. Paying interest on unnecessary purchases can derail your efforts to get rich.
4. Investing for the long term
Finally, investing for the future is crucial to ending up wealthy since it allows your money to work for you. Say, for example, you invest $10,000 a year for 30 years and earn a 10% average annual return. You’ll have invested $300,000 over time — but will end up with $1,809,434.25.
Your money will grow exponentially when you invest because the returns you earn are reinvested and earn money for you without extra effort on your part. This is the miracle of compound growth.
Adopting these four habits are an almost surefire path to wealth if you practice them all for as long as possible. So, get started today if becoming rich is your goal.
Alert: our top-rated cash back card now has 0% intro APR until 2025
This credit card is not just good – it’s so exceptional that our experts use it personally. It features a lengthy 0% intro APR period, a cash back rate of up to 5%, and all somehow for no annual fee!
Click here to read our full review for free and apply in just 2 minutes.
We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Christy Bieber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
“}]] Read More
