Observing wealthy people teaches us three key factors in how they built their wealth. Keep in mind, I’m not talking about Hollywood-type wealthy. I’m talking about the kind of wealthy people we don’t see in the media. “The Millionaire Next Door” type of wealthy people. We would all be well served mastering these three factors of wealth:

Wealthy people:

1. live well below their incomes.
2. believe that financial independence is more important than high social status.
3. allocate their time and energy efficiently in ways conducive to building wealth.

These three factors appear in the e-book “Money for Life”.

Let’s discuss all three.

Wealthy people live well below their incomes.
We could possibly check Webster’s Dictionary to see what the definition of “rich” or “wealthy” is. I’m not going to bother. My home-grown definition is that the rich have more assets than liabilities. The richer have even more assets than they do liabilities, and so on.

I had a conversation with a friend once, where she mentioned how upsetting it was that “only the rich get to drive new cars. All of the middle-class has to drive used.” That shouldn’t be upsetting. That should be motivating. If you want a new car then save your money and buy one. The only person stopping you from doing this is you.

Wealthy people don’t use consumer credit. Now I’m not talking about inheritors or Mike Tyson, not even MC Hammer. I’m talking about those neighbors you have who are worth several million dollars - but you would never know. And frankly, they like it that way.

Wealthy people budget their money. They spend a few hours each month looking over their finances. They communicate well with their spouse about money because of this budgeting process. This allows both spouses to be on the same page about money. It removes unnecessary guilt when one has to buy something - because it’s already been talked about.

A wealthy person might only make $50,000. Does that make you rich automatically? No way! There are plenty of families that bring in way more than $50,000 that are living paycheck to paycheck. What makes the family with a $50,000 income rich? They live on $40,000 of it. What good will saving that $10,000 each year possibly do? My calculator tells me that if they put away $833 ($10,000/12 months) each month into a retirement account, such as a Roth IRA, in 40 years, making an average of 8% per year, they would have $2,909,173. This unrealistically assumes that they never make more than $50,000 per year!

Did they drive used cars? Living on $40,000 a year, you bet they did. Sitting on almost $3 million, do you think they still drive used cars? Oddly enough, they probably do. Because they understand and appreciate the value of a dollar. Could they buy a new car if they wanted? Sure. If they put their nest egg into an ultra-conservative investment making just 4% per year, they would be making a passive income of $116,367 every year.

Where did their unbelievable financial ability come from? They lived well below their income. Now let’s look at how they were able to do this.

They believe that financial independence is more important than high social status.
Let’s admit it. Social pressure is very, very strong. It’s hard to resist buying name-brand clothes, a new car (newer than the neighbors!), or even a larger house.

A wealthy person has an invaluable perspective when it comes to these social pressures. They see them as just that - social pressures. There is no substance behind them. There is no reason to heed them.

The irony about keeping up with the Jones’s is that the Jones family is completely broke. They’re leveraged to the hilt and are enjoying the use of other people’s money. If dad comes home with a bonus they blow it. They don’t think about possibly putting that windfall towards the principal on their house. They don’t consider paying down the debt they owe on their vehicles. The Jones family is broke! Stop trying to keep up with them! You will digress if you follow their financial plan.

The rich see this. It’s as if they have financial x-ray vision. I am trying to develop this skill myself. What do you see when your colleague (who makes just as much as you do) drives up in a brand new car that is valued at half his annual income? Most people see a very nice car. Most people then see an ad for 0% APR for six months on all new vehicles, with a cash-back bonus of $2,000. And most people would go out and “match” their colleague - or maybe even raise him one. Most people are broke.

The wealthy person, equipped with financial x-ray vision, sees a money pit. They see a ball and chain attached to their colleague’s ankle. They see piles and piles of future cash flow that have now been lost to interest. They see a stressed wife who will now have to charge groceries when the end of the month comes because a car payment is devouring the monthly cash flow.

With financial x-ray vision a rich person sees things as they really are. A rich person doesn’t have to impress anyone with material goods. They are satisfied with financial peace of mind - not the next fad.

They allocate their time and energy efficiently in ways conducive to building wealth.
Let’s face it. All of us have some spare time. If you don’t think you have any spare time then I challenge you to do a little exercise for a week. Keep track of what you do for every minute of every day for one week. You will be surprised how much spare time you actually have. Once you gain this realization, begin focusing on using your spare time in a way conducive to building wealth.

Wealthy people do exactly this. How much time does the average millionaire spend watching television? Virtually none. Why? Because the millionaire recognizes the value of his or her time and uses it for activities that add value to life: spending time with family, developing new skills, reading informational and uplifting books, managing investments, etc.

On average, millionaires read one non-fiction book per month. When was the last time you read a non-fiction book? For what reason? Millionaires seek knowledge to improve their situation - they don’t seek a new government program or social initiative. They seek out knowledge to solve their own problems and then they apply that knowledge.

I challenge you to read one non-fiction book per month starting now. If you want a list of great books then check out the many lists of classic books available on the internet. Seek out new knowledge. Turn off the television an hour earlier and read a good book.

Do wealthy people spend their valuable time budgeting? Of course they do. Many millionaires are in their great financial position because they budget. The couple will sit down for an hour or so each month and budget that month’s money. Can you believe that millionaires even keep their receipts and record every purchase? Many of them do. This is one thing that has enabled them to live within their means. They know where their money goes and how it’s used. They devote a couple hours each month to have this absolutely invaluable information - and it pays big dividends in the end.

Do you use your time on the job in a way that is conducive to building wealth? And I don’t mean the fact that you’re paid while at work. How do you use your time at work to increase your skills, marketability, value-adding capability, and prospects for the future? Do you make sure you give your employer an honest day’s work? Do you stay aware of opportunities that present themselves where you could be stretched and grow? On-the-job training is absolutely invaluable when you approach your job with the right perspective. Make sure you make your job an opportunity that will facilitate the building of wealth.

These three factors hold true for any person who’s going to make it in the financial long run. Keep them in the forefront of your mind. Strive to live on less than you earn, treasure financial security over the fleeting fads of society, and spend your time improving yourself, your family, and your financial future.

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