We all know somebody like Mitch, your mass-commuting, brown-bagging coworker who has toiled in accounting for as long as you can remember. Did you know he owns a vacation house at the beach?
Or the McGillicuddy family, who live down the street in a house just like yours. Would you believe they didn't have to borrow a dime to send their kids to college?
Or Steve, your fellow baritone in the church choir. He just donated how much to help fund the city symphony?!
Call them the invisible rich. How do they do it? Sure, money like that sometimes comes from an inheritance or another fortuitous break, but more likely it's the result of diligence, smart choices and, well, deferred gratification.
The tenets they follow can also put you on the path to financial prosperity and security. Discover how.
They Don't Spend Beyond Their Means
They Educate Themselves
Your own earning power -- rooted in your education and job skills -- is the most valuable asset you'll ever own, and it can't be wiped out in a market crash. But it can erode. Keep pushing up your earning power through continuous education, training and personal development. This could mean going back to school, adding a needed certification on the weekends or serving in work-related fields that will build your network -- and increase your salary.
They Pick the Right Field
They Save (and Invest) Early
If saving on a starting salary (or even now) seems daunting in the face of monthly bills, consider paying your future self first. That is, when budgeting, your first line item should be a transfer -- ideally, an automatic one that you don't even think about -- to your savings account, money market fund, IRA, brokerage account or other savings vehicle. Then budget for what's left of your income, with, say, the cable bill last. If there's not enough income to cover your expenses, trim your discretionary spending.
They Don't Swing for the Fences
That's not just because of the greater risk of losing principal; it's also because of the fees the more complex investments often bring with them. That's money you're guaranteed to lose, and money that won't be around to grow your wealth over the long term.
They Keep Themselves Covered
Disability insurance above and beyond what might be available from your employer will ensure that your earnings don't take a hit if you become too ill or injured to work. And as your tangible and liquid assets grow thanks to your smart investing and everyday savings, a personal liability umbrella policy that extends the coverage of your auto and homeowner's insurance will protect you from the legal fees (and potential judgments) of a civil lawsuit.
They're Wise About Windfalls
(In case you're wondering, we're not talking about lottery winnings here. The invisible rich definitely don't play the lottery.)
They Hang Onto Their Cars (and Houses)
New houses, on the other hand, can appreciate in value. But the hazard of trading in and trading up remains, with the frictional costs (such as broker fees, transfer taxes and mortgage origination fees) that come along with it. Stay put if you can, making modest but wise upgrades along the way. An extreme example of someone who could afford to move but keeps it simple: Warren Buffett, who has lived in the same Omaha, Neb., house for more than 50 years.
They Avoid Debt
You can’t be rich if you owe. Use credit only to purchase things of lasting value: a home, an education, maybe a car. Pay cash for everything else. To quote Knight Kiplinger again, “Do you know anyone who got into big financial trouble because they didn't borrow enough money?”
- Where the Millionaires Live in America
- How to Retire A Millionaire Starting at Any Age
- QUIZ: Do You Have What It Takes to Be a Millionaire?
- Personal Finance - Career & Education
- Banking & Budgeting
- discretionary spending