Thomas C. Corley, an American financial planner spent 5 years studying the habits of the rich and poor. He looked at 233 people who had more than $3.2 million in net assets and looked at how they lived, what they watched, etc. He also researched 128 people who earnt $35,000 or less per annum income and had $5,000 or less in net assets.
Here are what Corley calls “rich habits”.
1. Set goals and have a plan.
The foundation of any good plan is to first set your goals, so you have something to aim for and achieve, then make a plan on how to get there. Corley saw this as a very common trait amongst the wealthy and they would split their goals into short, medium and long term to ensure they kept to a timetable.
It’s amazing the number of people I have met who have said I was meaning to get around to that, and then 5 or 10 years pass them by. Life will always get in the way and so it’s important to have a plan, and stick to it (or have someone else help you keep accountable).
2. Have an emergency nest egg.
A 2018 US Federal Reserve report found that four in 10 adults would not be able to cover an unexpected $400 expense, much less have an emergency fund or nest egg. Even though this is based on the US, I am sure it is similar here in Australia. As if COVID taught us anything with over 3.4 million needing to draw down from their superannuation in 2020, it’s that most don’t have an emergency fund to cover them for at least 3 months’ worth of expenses.
3. Create multiple streams of incomes.
I have always said to my clients that it’s not how much you earn that makes you rich but what you do with it.
The wealthy learn very early on that your salary is only one income source and you need to have multiple income streams. The aim is to have enough alternate incomes from, for example shares and property so that eventually this income replaces your salary. Warren Buffet the financial guru puts it bluntly when he states “If you don’t find a way to make money while you sleep, you will work until you die.”
Corley found that 65% of wealthy people had at least three different streams of income set up prior to making their first $1 million.
4. Education should be a lifelong passion.
Wealthy people even though busy, make time to read. Not so much thrillers or other fiction novels although that can be entertaining too, but they also found time to read educational and self-improvement books. It’s good to note that it doesn’t have to just be books but can be, for example to attend a language class, visit an art gallery, or go to a museum rather than the movies for a change. Corley found that only 8% of low earners read educational/self-improvement books or tried to expand their knowledge.
Corley wrote “Success requires growth. That growth comes from reading and educating yourself on a daily basis.”
5. Your relationships matter.
Who your peers are or those that you associate with, does have an effect on your own wealth and situation. Psychology plays a huge role in wealth accumulation, as Corley found that only 4% of low-income people associated with “success-minded” people.
“You are only going to succeed in life if you surround yourself with the right type of people. That is to say, people who are encouraging, positive, curious, and helpful.”
6. Stop beating yourself up.
When it comes to psychology and money, the only thing worse than surrounding yourself with negativity is being negative yourself and believing the world is against you. Life can be tough it’s true, but it’s how you deal with these challenges is what matters.
Corley wrote “When you allow negativity to rule your thoughts, you are programming your brain for failure. You’ll have no chance in life at breaking out of your current financial or life circumstances. These negative thoughts will become beliefs that act like computer programs.”
7. Live a healthy lifestyle.
Making money takes will power and work. So does exercise and eating right. So taking care of your finances and your health go hand-in-hand.
“Poor health habits create detrimental luck,” Corley wrote. “This is a type of luck that is a by-product of poor habits, poor behaviour, and bad decision making.”
Debt is a perfect example of this, wealthy people use debt to help create wealth such as borrowing for an investment property. Whereas those that struggle are usually using debt for lifestyle choices such as clothes, big TVs and such, assets that lose value as soon as you buy them.
Making mistakes or poor decision making is just part of life for the rich and poor alike, but it’s how you learn from these that matter.
“Adopting one rich habit has the effect of eliminating many poor habits.”
So, if you make the decision to change your life and adopt some of the traits of the rich, Corley’s research seems to tell us we should read more, make a plan, build more income streams and act positively with a healthy attitude. If I could add one more thing to these list of traits, have a mentor or coach, as the rich (in money and in life) realise you don’t have to do it all on your own.
Article by Marc Bineham – Money coach, speaker and award-winning author of The Money Sandwich