1. Be frugal, not cheap.
Being frugal means spending your money wisely. Frugal spenders make a habit of buying the highest quality product or service at the lowest price possible. They focus on quality first and cost later.
Cheap spending means buying the cheapest product or service, with little regard for quality. Cheap products break down after just a few years, forcing you to replace them over and over again. Cheap services are typically provided by those who are either inexperienced in their field or who are not very good at what they do. This can result in mistakes that cost you money down the road.
2. Keep your spending in check.
The Saver-Investor self-made millionaires in my Rich Habits study accumulated their savings by sticking to the following guidelines for spending their net, or take-home, pay each month:
- Housing – 25 percent or less. Side note: The wealthy tend to buy, not rent.
- Cars – 5 percent or less. This includes not just the monthly payment, but also insurance, gas, tolls, registration fees and maintenance.
- Clothing – 5 percent or less. Refer to the frugality habit here: Invest in quality, not quantity.
- Vacations – 5 percent or less. The Saver-Investor Millionaires in my study took modest, inexpensive vacations and found bargain travel deals for their families.
- Entertainment – 10 percent or less. This category includes bars, restaurants, movies, music, books, gifts and so on.
Getting control of your spending is not an easy task, and it might challenge your vanity—many of the wealthy are not afraid to bargain shop or use coupons. Once smart spending becomes a daily habit, however, it gets much easier.
3. Surround yourself with fellow Saver-Investors.
The Saver-Investors in my Rich Habits study intentionally surrounded themselves with friends who shared their savings mindset. Why is this important? Habits spread like a virus throughout your social network. If your inner circle includes too many spenders, you will eventually become infected by their spending habits and will be unable to save. Copy: success