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There are many personal finance experts (i.e. David Bach, Suze Orman, Dave Ramsey, Gail Vaz-Oxlade) with wonderful ideas regarding what one should do to reach financial security and independence. I want to share with you some things I have learned, applied, and found beneficial to my family’s financial wellbeing.
While I was in college, I came upon a book titled The Millionaire Next Door written by Thomas Stanley. The book detailed what “real” millionaires are like. Most millionaires are not flashy, don’t purchase luxury items, live frugally below their means, and in all, is just the opposite of what we see on TV. I must say that this book changed my life. It made me realize that you cannot judge a book by its cover. Just because the woman sitting next to me has an LV bag does not mean that she is wealthy. It just means that she spent a lot of money on a bag. I want to make it clear that I do not frown upon people who choose to spend their money on luxury items; it is their money, their choice.
Having decided that I’d like to be a millionaire someday, I chose a lifestyle which will enable me to become one. A few simple rules I follow:
1. Live below my means. Expenses should never be greater than income!
2. Live frugally (though not extremely so). Being frugal is making smart spending choices or getting the most for my money. Being frugal is not the same as depriving myself of any fun or enjoyment.
3. Fulfill all of my needs and most of my wants by not wasting money on things I do not care about. For example, I would not spend $400 to purchase a bag but would spend $400 on 4 season tickets to Six Flags Great Adventure.
4. Transfer money to savings/investment accounts automatically. The key to become wealthy is to save at least 20% of income. It is also important to diversify assets.
5. Budget. Budget. Budget. Know where every penny of my money is going. Always over-estimate expenses, that way, it’s unlikely I’ll go over the budget.
6. Don’t buy a car unless I can pay for it in cash. Keep cars for 10+ years, until they’re no longer safe to drive.
