Repost from Debbie’s Frugal Forum:
Ever see the wonder in kid’s eyes as they view that big house on the road or even the adults looking at that new car the neighbor just brought. You think to yourself wouldn’t it be nice if I had that. One of the problems with today’s society is our measure of wealth. Higher income doesn’t necessary mean that you are wealthier. What really matters is how much of the income is invested.
The book “Millionaire Next Door” says millionaires invest nearly 20% of their income. Here is a formula for determining whether you have a net worth that is measurable to your income. Multiply your age times your realized pretax annual household income from all sources. Divide by 10. This is what your net worth should be. This formula does not factor in any inherited wealth.
Thinking that you have an higher unlimited income does not mean you should not have a budget. You should pay yourself first by putting away a good chunk of your income before you spend it. Planning is a key factor in being proactive with your wealth. Knowing what you can spend might mean you’re not going to get that new car this year but your net worth is going to increase.
Do millionaires budget? Many of them do. They know how much it cost them to live. They know all of their expenses plus have a long term plan of where they want to be at certain ages in their lives. Do they give up some luxuries to accomplish this goal, some do.
When you have to have a house in that exclusive neighborhood spending more than you should, your ability to save and build wealth will be compromised. Does all of this mean we have to give up some luxuries in life to become rich? No, but we do need to be realistic. Don’t expect status purchases to make you happy. What you will find that when you are financially independent you will be happier. Peace of mind is a high price to pay just to drive around in a new BMW.
Top Ten Ways to Become a Millionaire:
1. Live within your means
2. Earn Income.
3. Curb Impulse Spending.
4. Save Money.
5. Invest Wisely.
6. Have a budget.
7. Stick with your long term plan.
8. Get an education. Knowledge is power.
9. Own a home.
10. Be positive. Don’t always think that the grass is greener on the other side. Wealth perception can be deceiving.