It might surprise you to learn that there are millions of millionaires in the United States. While some inherit wealth or get lucky in the lottery, many millionaires reach their position through strategic financial decisions and consistent money habits. Here are 10 smart habits you can adopt today to enhance your wealth-building journey, regardless of your current income level.
1. Know how to leverage debt
It’s likely we’ve all experienced debt at some point, whether to own a home or car, further your education, or handle a large personal expense. You might assume multi-millionaires protect their wealth by avoiding debt at all costs, but two of our wealth strategists, Jill Garvey and Belinda Sherman, tell a different story. Many multi-millionaires do take on debt, but they are strategic about how and when they accumulate it. For example, if interest rates are low, they might choose that time to apply for a mortgage, business loan, or another investment that appreciates in value. That way, they can lock in a lower interest rate and lower monthly payments while their assets grow in value.
To better leverage your debt, focus on paying off any high-interest debt first, like credit card debt, to free up resources for future investments. You could also consider a balance transfer to a lower-rate credit card to help consolidate debt, if that’s applicable.
2. Grow a strong emergency fund
It may seem to run counter to common sense, but even multi-millionaires need emergency funds. That’s because if an emergency arises, no one wants to sell off their investments or use a credit card to pay their bills. Having an emergency fund available in a savings account or a money market account (MMA) ensures funds are readily available when the unexpected happens. Both accounts keep your funds liquid, so your cash is easy to access if needed, and those accounts typically earn interest, helping your savings grow.
When building an emergency fund, saving up three to six months of your expenses is a commonly shared rule of thumb. Sherman recommends taking this practice a step further by instead saving three to six months of your income, as early on as you can. By using your monthly income as a benchmark for your emergency fund, rather than your essential expenses, you can help bolster your emergency fund to protect yourself now and in the future.
3. Keep emotions out of financial decisions
Again, both Garvey and Sherman agree that many multi-millionaires excel at setting their emotions aside when it comes to their money and market volatility. Sherman says, “When investing in the stock market, many people panic when the market drops. That anxiety causes them to sell at the wrong time and they miss out when the market rebounds. And usually, the largest rebounds in the market are right after the largest declines. For many people, that one experience is enough to deter them from ever investing again.”
Multi-millionaires oftentimes understand the long-term trends of the market and generally know that, while things may be volatile in the short term, it’s important to stay the course to maximize their returns. Many millionaires also surround themselves with experienced financial advisors, lawyers, and tax professionals to help guide them when the best path forward feels uncertain. As you develop your financial strategy and long-term goals, financial advisors and planners can be instrumental resources, helping to remove the emotions around these decisions to ensure you’re making the right moves for your circumstances.
4. See failures or mistakes as learning opportunities
Many self-made millionaires are not afraid to take calculated risks, whether it’s through their finances or professions. Sherman shares that many self-made millionaires she’s seen are entrepreneurs with a strong will to achieve. “Businesses do not succeed overnight. They require trial and error and oftentimes require business owners to go into debt early on to get their business off the ground, which can feel risky. They might approach their finances in a similar way. These millionaires believe things will work out for them in the long run, so they aren’t as afraid of riskier investments that yield larger returns.”
If you aren’t a multi-millionaire, it’s hard to imagine taking large risks with your money. To build your risk tolerance, consider small, calculated risks. If you do invest, you could allocate a small percentage of your portfolio to higher-risk investments, or invest in yourself through education, which could lead to higher earning potential in your career.
5. Earn compound interest
According to Garvey, multi-millionaires understand how to use their wealth to effectively create more wealth. Ask yourself, is your money working as hard as it can for you? Multi-millionaires proactively invest to take advantage of compounding interest and they continuously reinvest those earnings to accelerate growth.
Investing in the stock market usually works best with money you won’t need for at least five years. If you’re not a multi-millionaire, it can sometimes be difficult to look that far ahead. That doesn’t mean you can’t start small with compounding interest. If offered by your employer, you could begin by contributing to a 401(k) to build savings for retirement, or you could open a money market account (MMA) to help you save for a wedding, vacation, or another short-term savings goal.
6. Save early and often
The path to becoming a self-made millionaire is often long, requiring patience, consistency, and discipline. Aggressively saving and prioritizing saving as a non-negotiable habit has helped many millionaires build a nest egg to take them to the next level of their financial goals, like owning a business, purchasing real estate, or investing.
To kick start your savings, don’t underestimate the power of automation. Activating recurring automatic transfers from your checking to your savings on the days you’re paid could help eliminate the temptation to spend the money you want to save. “If you don’t see it, you don’t spend it,” says Sherman.
7. Become tax efficient
Not super excited about tax season? You’re not alone. That’s why Garvey encourages her high net-worth clients to reframe their relationship with taxes. “Yes, income taxes can be the largest expense you'll pay in a year, but it's necessary to understand their impact on your financial situation so that you can build wealth for the future.”
Sherman adds, “If I have high income, I want to maximize all my tax breaks. That means maximizing retirement savings, health savings, and education savings. Any way I can strategically set aside money in a tax advantaged account, I want to do it to the extent that I’m able.” If you have a tax advantaged account, like a 401(k), Roth IRA, or a health savings account, try to prioritize your contributions to help reduce your taxes and ensure savings for the future.
8. Make a solid financial plan
Belinda Sherman is often asked, “Why would a person need a financial plan if they have millions of dollars and can afford everything?” Her response? “While that may be true, it doesn’t mean a multi-millionaire shouldn’t be organized. Especially if they are philanthropic or have certain goals and need to keep track of the money coming in and going out.” Sherman is passionate about financial plans for people of all income levels. “A financial plan is the bridge that connects your money to your goals—they help you understand the money you have, how it continues to grow, and how it can help you spend more time doing the things you want to do.”
A financial plan looks different for everyone—it could be a piece of paper with your handwritten goals, or a detailed spreadsheet on your computer. As your wealth grows and your needs change, your financial plan could transition to a portfolio you share with your financial planner. There isn’t a single way to build a plan, the most important part is making your goals known.
9. Build a trustworthy financial planning team
“Millionaires are looking for experts that are trustworthy, astute, and proactive,” explains Jill Garvey. “They’re looking for coaches that can take work off their plates so they can focus on creating wealth in their business or profession. Ultimately, millionaires are looking for a sounding board. You might have an idea of the right next step for your finances, but it’s important to have an expert give you that validation as well.”
Consider meeting with a financial planner you trust to help take your financial plan to the next level. They are eager to offer specific tools and guidance based on your unique financial circumstances. They can help illuminate the steps to achieving your financial goals and serve as a gut-check to help validate your savings strategies.
10. Develop habits that work for you
Adopting these habits doesn’t guarantee you’ll become a multi-millionaire, but they may spark ideas that can help you grow your wealth and empower your financial decision making. To help set yourself up for financial success, the most important thing is to implement sustainable financial habits that resonate with your lifestyle. What’s your next step?
