Jay Papasan:
I’m Jay Papasan and this is The ONE Thing, your weekly guide to the simple steps that lead to extraordinary results.
Hola, amigos! Jay Papasan here with part two of our special Wealth Building Series. Last week, we talked about the Path of Money, which is a model for thinking about where your money comes from, what you do with it, and how to put it to work on your behalf. This week, we’re going through the habits of wealth building. I love talking about habits. You hear me talk about it all the time, because when you work for a habit, then that habit works for you. It’s a great form of leverage to put into your life.
The challenge that we all have, if you’re like me especially, a French-English major, never really studied investing until later in life, a lot of this just felt very confusing. I heard people talking about wealth building and, a lot of times, it just sounded risky because some of the things they were saying weren’t mainstream. What do you mean, invest in businesses? What do you mean, invest in real estate? All of that stuff.
If you’re one of those people, then last week and this week, hopefully, we’re laying a foundation for you to understand the fundamentals. And this week, we’re gonna talk about how wealth is actually made. It’s not in spreadsheets, it’s not in understanding books and listening to podcasts, it’s in what you do and you don’t do, and what better way to do things or not do them than to build habits around that.
So this week, we’re gonna cover the habits of wealth building, the things that we want to put on automatic, the behaviors that we want to kind of be instilled, that better protect our money that better put us in a position to make it grow over time.
So, remind ourselves, why are we here? Financial wealth, as we defined it in the first episode, I’m going to say this every time, we define financial wealth as having the unearned income to fund your life mission without you having to work. That doesn’t mean you won’t, but you don’t have to. Work becomes a choice. You can now pursue your passion, your mission with unearned income. And unearned income is simply that the money that you invested is working for you and paying dividends or growing at such a rate that you can live on what your money is yielding, not your paychecks from your job.
Now, quick reminder on habits before we dive in. On average, it takes about 66 days to form a habit. You repeat the activity, it starts to get more and more ingrained. And the research that we found shows that about 66 days in, it gets about as easy as it’s going to get. Sometimes, it happens faster. Sometimes, it takes longer.
So, when you think about the nine and a half habits I’m gonna roll through here, you can decide which ones you’re missing. Some of them you might already have. Some of them you might be doing, but not very purposefully. Some of them you might, like, “Man, I need to get on that.” You’ll then get to decide where to start. But just remember, try to focus on one at a time. You can build as many as five habits a year if you’re doing it in an average kind of way. So, it’s not like this will take forever. And the foundational ones, and I’ll call those out, those are the ones to start with. So, that’s how habits work.
And also remember the principle of the first domino. You don’t have to knock over a giant domino to begin with. We can start small and just trust that as we knock down our dominoes day in and day out, we’ll get stronger, we’ll get smarter, and the dominoes, the impact, the effect of what we do will grow larger as we go down that path.
So, let’s talk about nine and a half habits for wealth building. Number one, and this is a big one, you’ve got to learn to build the habit of living below your means. That means that if you earn $100 a month, you can’t spend $100 or $101. If you can’t live on less than you earn, you will never be able to save money. If you can’t save money, you can never invest money, good or bad. So, it’s kind of like the very beginning of the process.
And it’s not an easy one. Lots and lots of people struggle with it, especially when you think about, remember when you were in college, you got your first credit card or maybe a debit card, you didn’t quite know the consequences of overspending a little here and there, and you make the minimum payments, and maybe you ran up some high interest debt and got in trouble. And then, you got out of college, and you also had your school debt. You’re like, “Whoa, nobody talked to me about this.” A lot of us have been there.
Now, today, listening to this, we have to ask the question, how do we begin to build the habit of living within our earnings? To live on less than we earn, so that we can begin the process of saving and investing. And when you save the money, there’s a lot you can do with it. We’ll go through. There’s a couple of habits, like you can build up your reserve fund, you can pay down debt, or you can invest. But it all begins, you gotta be able to save money.
So, when Wendy and I first got married, we were both pretty decent about this. We paid off our credit cards at the end of the month. We’d already learned the hard lessons before we got married. But when you have two incomes, two people with debit cards, two people with credit cards, and you haven’t figured out the rhythm of communication, it was a struggle for us as a couple. We had to relearn the lessons, how do we live within our means? If you don’t get control of your spending, I promise you, you cannot out-invest your way out of it. You can’t out-earn your way out of a spending habit.
So, this is just so fundamental. And today, with stress and everything that’s going on, I know lots of people I’ve been there at different times that will kind of do shopping therapy. They’re on Instagram, they’ll click on the ad, they’ll go buy this or that. Maybe they go to Amazon and buy that tenth book that they haven’t had time to read, but there’s that little dopamine hit that comes from their shopping habit. We’ve got to learn to control that or build some hacks into it, so that if we really do enjoy shopping, that is something that we want to do, can we start doing shopping around things that we can actually afford to do? So, what is it if you’re going to go out and do some spending, can you go thrifting? Can you do other things that scratch that itch but also live within your budget?
So, there’s lots that we can unpack there, but the ultimate habit is I’ve got this much money I’m going to make this month, I am committing every single month to live on less than that, so that the remainder becomes available to me in order to further my investing, to head down the path of wealth building. So, number one, live below your means.
Habit number two, you’ve got to pay your future self first. People talk about pay yourself first, pay yourself first. I read of this a lot in a ton of investing books. I want to say pay your future self first. If you’ve ever had a 401k, what happens is you commit a percentage of your paycheck to automatically, every time you get paid, get invested in whatever your selections are in your 401k. Maybe a mutual fund, maybe bonds, maybe REITs, whatever that might be. You’re automating it.
And I remember the very first time I did this, my very first kind of salary job at HarperCollins Publishers in New York, they had a 4% match and I dedicated 6% of my paycheck to going into that 401k, so I could say, “Wow, 10% of what I’m earning.” For the record, publishing, not very much. If you’re in publishing, you’re laughing right now because even in New York City, you didn’t make a lot. But it was still 10% of my earnings was going into a future investment account. The first couple of paychecks, I noticed that money not coming into my bank account. I was very aware of having that 6% shaved off the top. But over time, what’s actually arriving in your bank account becomes normal.
Now guess what? You don’t have to have a 401k to do that. You can go to your bank. You can go to… if you work for someone, go to their payroll and say, “I’ve got a savings account. I would like to have 95% of my check deposited into my checking account. Can I have 5% of my paycheck deposited here?” I know lots and lots of employers that will make that. You may have to fill out some paperwork, but you can automate this, either at your place of work or you can do it on the bank side. Whatever you have to do, if you can automate it, that’s huge because, now, you don’t have to decide every two weeks or on the 15th and the 30th, whatever your pay schedule is, to consciously move money out of your checking and into your savings.
Because here’s the reality, especially in the beginning when we’re still learning to live that first habit, to live below our means, if we’re still learning that, we tend to spend what’s in our checking account. So, having it somewhere else, so that if we do hit bottom, we’ve run out of money before we’ve run out of days of the month, we now have to consciously go to our savings account and move money over to cover that.
And that happens. Like it used to happen to Wendy and I a lot. In December, we had two families to go see at Christmas, you had presents. And so, we would go a little bit beyond our means during that kind of traditional month of heavy travel and stuff. And then we’d have to pay ourselves back later. But it was a conscious thing, “Hey, we’re gonna be $500 over budget this month because we had to buy a plane ticket to go to Fargo, North Dakota.” True story. And then, over the next couple of months, we tried to repay ourselves.
So habit number one, live below your means. Habit number two, try to automate your savings. Pay your future self first, whether you can do it through your payroll department or you do it at your bank, how can you start automating saving money?
Now, even before investing, we’re gonna talk about paying down debt. This is a little bit more complicated, but we know so many people, we all have friends, and maybe we were that friend who got in trouble with a lot of debt. Maybe there’s credit card debt. A lot and a lot of people get into medical debt. They have an unexpected medical event and their insurance does not cover it. And in order to take care of medical bills, what could be more important than making sure that our body is able to heal, that we can take care of our loved ones, we end up in medical debt. You know, other people also might end up in school debt. Very common in this day and age.
How do we balance this out? Without going too, too far down to it, there’s two philosophies you can have. If you look up now and say, “How can I possibly begin building wealth when, yes, I can live below my means and, yes, I can save money, but I’ve got all this debt to tackle?” Mathematically, people will tell you, start with your highest interest debt. If you’ve got a school loan at 6%, you’ve got medical bills that are at 8%, and you got a credit card at 18%, it doesn’t matter what the balance is, the math would say, start paying down the 18% of the credit card.
Now, Dave Ramsey, if you’ve studied him, I’m a fan of his debt philosophies for sure, and I’ve known lots of people, and I’ve coached a lot of people through this, they use the snowball method, I think is what he calls it. And instead of choosing the credit card or the debt that has the highest interest, you choose the lowest balance. So, you’re making the minimum payments on all of them, and then you take all of your extra money and you put it towards the lowest balance you have.
So, go back to that earlier example. You’ve got school debt, maybe $10,000 at 6%. You’ve got a medical debt and it’s $5,000 at 8%. And then, you’ve got this 18% credit card loan and that’s actually $20,000. The snowball method would say you’re going to go with the middle piece. You’re going to pay down that $5,000, you’ll pay the minimum of the other two, and the point is if you can quickly, more quickly because it’s a smaller balance, pay down that $5,000 at 8%, then you can take all the money that you were paying there and apply it to the next highest balance. And that would be the $10,000 at 6%.
And now, you’re like, “What? But what about that big balance of the 18%?” Mathematically, everybody who says pay the highest percentage is right. Psychologically, it can feel like a mountain that’s too tall. But when you’re knocking out the small balances, you get this snowball method. It starts to grow. The amount of money as you pay off each little piece of debt, that payment goes away, you get to cry, “Woo-hoo, I made a victory, I knocked that piece of debt out. Now, I’m taking all of my money and aiming to get the next.” You build momentum.
And momentum is psychologically important because what we don’t want to do is just give up. We cannot just give up. Kent Nerburn, he wrote this, “Debt defines your future. And when your future is defined, hope begins to die.” You have committed your life to making money to pay off your past. Now, process that. When people get so deeply in debt, it feels like all that they’re working for today is to pay off past mistakes. That’s when hope dies, and that’s when you get in a really dark place.
So, again, if you have to choose, if you’re a creature of logic, I get it, go for that high interest. If you’re a creature that just needs to feel like you’re making momentum, maybe start with that lowest balance, so that you can get the progress, and then snowball off from there. It shows up in my life as I’ve seen people as people who don’t quit the process and eventually get out.
And I think that’s one of the reasons that Dave Ramsey became a master. He was really good at coaching people out of debt. And I’ll stop there. But I’m also going to say, I didn’t say it at the beginning, please don’t confuse anything that I’m saying here for actual tax or legal or investing advice. I’m a journeyer just like you. These are models and perspectives. I want to give you models and perspectives, so that you can make better decisions, but those decisions are your own.
All right, so there’s three. You’re gonna live below your means, you’re gonna automate your savings, you’re gonna pay down your debt. And paying down your debt can come in multiple flavors. And is there good debt and bad debt, Jay? Yeah. A mortgage, they call that often good debt because it’s attached to an appreciating asset, your house. I don’t want to go down that, but it’s true. When you look at your debts, there’s some that it’s okay to let it ride. But there’s a lot, especially anything at high interest rates, that you’re going to want to pay down because it’s going to slow down your wealth building.
Ultimately, you’re going to get to a place where you’ve saved the money, and you’ve kind of paid down any past debt that you really need to aggressively do, and you’re going to have to look up and make this decision. And this is where the good debt and bad debt kind of thing comes in. Maybe you’ve got low interest debt against a property that’s appreciating. If we spend all of our money just to pay off debt, we’ll never acquire assets. So, if you’ve got debt at 5% interest rate, but you can make an investment at 10%, what’s the right choice?
Again, there’s a little bit of art in here but, at some point, you’ve gotten your debt covered in a way that you need to start buying those assets that appreciate, or those things that will return at a much higher rate than the debt that you’re paying down. Because mathematically, the growth in your investments will start to outpace any cost associated with that debt. I hope that makes sense for you folks.
Alright, number four, maintain an emergency fund. Now, you could argue, “Jay, if I’ve got my first money, do I pay off the high interest debt or I go here?” I’m probably gonna do a little bit of both, but the actual reserve fund is one of the reasons that we stay out of debt. When people have no reserves, then they look up and something happens because life is going to happen – the refrigerator is gonna die. You’re gonna get a leak in your roof. A pipe is gonna burst in the winter time, you know, a rock is gonna hit your windshield and it’s gonna have to be replaced, an air conditioner is gonna go down in your rental property, you name it, an unexpected medical bill – that’s what reserves are for.
And I talked about this in the Path of Money. A lot of times, our reserves are not working that hard. That’s not the point. They’re there to keep us from staring at the ceiling. This is money that we have for emergencies. I’m gonna go through this really quickly. I just think if you have nothing in your reserve account, nothing at all, start with like $500, that’ll cover a lot of unexpected bills. Build up $500. As you grow on this journey, could you have one month of expenses there? What happens if you lose your job? Would you be able to make your car payment? Would you be able to make those payments before you could quickly find work?
Ultimately, the goal will be to get to three to as long as six months of reserves. A lot of people say, if you have more than three months, that money is really not working for you. There are also people like me that are a little bit scared. They really wanna have a little extra cushion. But I have kind of gone back and forth once we’ve gotten to a place between three to six months, depending on how fearful I might be about the market and what might happen and how old different things are. I adjust it but I, generally, am comfortable between those barriers and you’ll find most experts somewhere between those two.
We’re gonna take a quick break. And on the other side of the break, I’ll take you through the other five and a half and then we’ll wrap up this episode.
All right. Welcome back, folks. Covered the first four habits of wealth building in our nine and a half habits for this episode. Let’s go to number five. You wanna build the habit around having clear financial goals. Having clear financial goals, which means you set a target, and you’re gonna keep it up to date. And I can just tell you on our journey, that target moved. If you listen to our last episode, in the very beginning, my wife and I set out to be net worth millionaires that get $75,000 in unearned income. Along the journey, we learned, man, we’re pretty good at doing the net worth thing, but man, unearned income was really hard for us. And we had to make adjustments along the way.
And I’m not saying, people who know me know this drives me crazy, we’re not lowering the goal just so we can say we hit it. But we got realistic about where we were and the timelines it would take to get us where we wanted to go, and we started asking bigger questions. The point is, if you aren’t setting clear financial goals, there’s nothing for you to aim at. There’s nothing for you to aim at and work backwards from.
And we’ll go into a lot of this in the next episode, where we talk about how to get from where you are to where you want to go. But right now, you’ve got to know where ultimately am I going? Am I trying? Right now, this year we’re going to focus on paying down this high interest debt. This year, I’m going to focus on building the habit of saving some money and building it up. Maybe I’ve covered my reserve fund, I’ve covered my savings and living within my means. You could be setting goals each year around your learning or around these habits but have a clear financial goal every year and then build on that as you go.
Otherwise, getting there, I promise you, will just be luck. A lot of people have dreams and notions, and they have not done the work to turn them into actual accountable goals that we can aim at and actually strive for.
Habit number six, invest wisely. Okay, duh, Jay, duh. But invest wisely, I’m gonna interpret this for you. If I have an investment goal, I now have to invest in ways that are appropriate for it. I’m gonna dedicate almost all of the next episode to that because that’s kind of a tricky conversation. But again and again, I’ve seen the tragedy of people having big financial goals, but what they’re actually doing, the investment choices they’re making are highly, highly, highly unlikely to ever get them there. They dream of being a billionaire, and they’re probably not going to get there with their 401k, folks. It’s going to take extraordinary luck for them to get there. So, I just don’t ever like to say impossible, though I think that scenario is pretty much impossible.
Now, if you understand what your goal is, you’ve studied the Path of Money that we talked about, then you kind of understand, hey, my goal is big, it’s up here, and my timeline is here, I’m probably gonna have to make some active lending or active ownership choices. Otherwise, it’s just gonna be luck. So, that’s what I mean by “invest wisely.” You’ve looked at where you are, you’ve looked at where you want to go, how long you have to get there, and you’re making the appropriate decisions for that.
Now, most people I see are unintentionally being way too conservative. They’re investing in things that are very safe, but unlikely to get them where they want to go when they want to get there. There’s also this other group of people that are just trying to find the silver bullet, the hack, the shortcut to get there. And that also is, frankly, I call it, it’s not even investing, it’s speculation. You are putting your money out there in the hopes that something out of your control will make your money grow bigger.
I know lots of people that are chasing whatever the latest crypto craze is or whatever. I’m not saying you can’t make money there. You have to be an investor if you’re there, and you have to know what you’re doing. And some kinds of investments are pretty sophisticated, and you need to do a lot more study and preparation before you actually play that investment game. And some are actually fairly accessible to us mere mortals, us English French majors. And so, we are going to make the appropriate choice according to our skills, our knowledge, our abilities and our goals. That’s what I mean by “invest wisely”. Between last episode and next episode in this one, hopefully you’ll get all of the pieces you need to make that happen.
Okay, next one, habit number seven, learn continuously. This is one of the hardest ones for me. I can remember in college, my dad was a businessman. He worked as an executive in the light company and then a medical company. And I would see him over there in his chair, like a lot of us have this vision of a dad maybe sitting in their chair, dad’s chair, and he would be reading the newspaper. And when I was growing up, there was a morning paper and an evening paper. And I can remember my dad reading both.
And at some point, I expressed some interest in business, and he just said, “Jay, I want you to start reading the business section.” He showed me, it was like six pages in our local paper. “Just read it, and it’s not gonna make sense. And it’s okay that it doesn’t make sense, but just start reading it, give yourself a reward, and you’ll look up, maybe in a few months, maybe a few weeks, maybe a few years, but suddenly it’s gonna make sense.”
And I remember I would go to the cafeteria at my college before class. I would read through, as best I could, the business pages. And honestly, a lot of it didn’t make sense. I recognized the names, oh, Texaco, oh, Apple Computer, whatever that was, but I didn’t really know, like, what’s a short? What are they talking about? Options and derivatives? All that stuff made no sense to me, and I would reward myself by getting like a Coke and working the crossword at the back of the puzzle. You know, it was the back of the business section back then.
And so, I made a habit of doing that, and I just remember, without even becoming conscious of it, suddenly a lot of that stuff started making sense to me. I was like, “Wow, okay.” Fifteen minutes a day, doing a simple activity where I had no teacher, no guidance, I was just blindly stepping in, eventually some of this stuff started coming together.
Now, I’ve written multiple investment books, I’ve worked with a multi-millionaire, if not a billionaire, who is a great investing mentor, and now I’m a lot more purposeful. I read a lot of books on investing when we were writing those books. But today, just kind of as a maintenance, I set a goal every year of reading five books on investing, on money, on how money makes you happy or it doesn’t, the psychology of money. Morgan Housel, great book to start with. Whatever that is, I just set a goal and I usually reward myself with a really fun novel as a reward.
That may not be you. Maybe you won’t read books, maybe you’ll listen to them. Maybe you’ll listen to a podcast like this one as your education. What are you doing to continue your learning journey because the rules of money, the basics are pretty timeless, but there are things that you can learn along the way that will help you hold on to your money? Because ultimately, the ultimate habit, and I associate this with the learning habit, is doing fewer stupid things.
There’s a quote from Morgan Housel, “You don’t need to be brilliant to build wealth, you need to avoid making stupid mistakes.” Now, here’s what happens, if you miss the market’s 10 best days over the last 30 years, your returns would be cut in half by 50%, just by missing 10 of those days. If you miss the 30 best days of the past 30 years, your returns would be an astonishingly 83% cut. Boom.
You cannot make rash decisions. You have to make informed decisions. You understand how the stock market works. A lot of it is driven by emotion. When things are going down, that’s when Warren Buffett says, “When other people are fearful, I’m greedy.” He doesn’t just stay in the market. That’s when he looks for opportunities to buy because there’s a certain amount of correction that’s happening and then there’s overcorrection that gives you an opportunity to make money.
All right, habit number eight. We’re getting to the end here, because remember I said it’s nine and a half. Track your progress. And even though this is number eight, and I’ve been kind of working in chronological order because that first habit, live below your means, if you can’t do that, nothing else matters. This is the one that I believe is the singularly most important over time, and it’s to track your progress, to track specifically your net worth. Your net worth is when you add up all of the assets that you own, and you add up all of the liabilities or the debt that you have.
So, the things that you own and the things that you owe, and whatever the remainder is, positive or negative, is your net worth. So, if you owned a house that was worth $500,000, that’s on the asset category. If you had a mortgage for $300,000, that’s on the liabilities or the owe category. You subtract $300,000 for $500,000. If those are the only two things on your net worth sheet, you’d have a net worth of $200,000. That’s how it works. If you go to the1thing.com/networth, we will have a worksheet for you to do this. But that’s how it works.
My wife and I started tracking, I think I told you the very first time we did it, everything that we’d done for 10 years professionally, both of us, that’s 20 years of work, was worth $2200. We felt kind of humble about it at the time, like it should have been more. Are you really saying that’s all we’ve accomplished? At the same time, it wasn’t negative. I’ve worked with so many people who start with a negative number. It doesn’t matter. Figure out where you are, because that will allow you to make better decisions.
Now, every single month after we started that habit, we would track our net worth. And back then, in 2001, we got our first mortgage, we got our first house. Back then, you had to call on the phone to get the balance on your mortgage, so I would know what to put down in the liability column. And then, we’d sit there in the office in our little tiny house, and I would dial up and go through the phone tree until I hit pay off balance, and then we’d manually enter into their spreadsheet.
Today, all that stuff’s online. It’s even so much easier to do. But if you consciously update all of these numbers, you’ll know the things that you own that are going up in value. When Gary started doing this we wrote about this in the millionaire real estate investor. He realized he bought a car, what happens the moment you drive it off the lot? You lose about 20% of the value. He’s like, “What? I just paid this much money for this thing. And now, it’s on the asset column and it keeps going down in value.” Some assets depreciate, they go down in value. Some appreciate, they go up in value. Tracking this, going on Kelly Blue Book, how much is my Bronco worth? How much is my Toyota worth? Whatever it is you own, how much is my bicycle worth? You look up and you’re like, “Wow. Okay, some things go up in value, some things hold their value, and some things go down in value.” You start to learn how value is created with money in the asset class.
At the same time, you look at your liabilities, and you’re very conscious of those, you see which ones are accruing the most interest and you are very conscious of where your money should go if you’re paying down debt. Also, cash. That’s on the asset column. You’re aware of how much cash you have. So, this one activity of writing all these numbers down and adding them up, when it becomes a little bit like a game, how do we make the number get bigger? And you can gamify it. You can have fun with it, believe it or not, over time. You track it and things will start to change for you.
This is a singular habit. It is incredibly important. I believe it is the millionaire habit because the ultimate measure of your wealth will be your net worth, and tracking that number will make you smart in so many ways. And just kind of like that story I told about reading the business section, you’ll look up and go, “I didn’t learn anything this month.” And then the next month you go, “I didn’t learn anything this month.” And then, it’ll happen again and again. But then one day you’ll go, “Oh!” Something will click, I promise you.
That’s the experience I had. That’s the experience my wife has had. We have coached, now, I think, 28 people from wherever they started to millionaire status, just very casually, just tracking it with accountability. And I’ve watched all of them build this habit and have that same aha. The awareness of what they were doing and how it was either growing or shrinking their wealth helped change their behavior. If you’re not tracking it, you don’t know the impact of what you’re doing, and you might make blind decisions that help you or hurt you. Guess which one happens most? Hurt. That’s true.
All right. Habit number nine. And this is one that we learned late, and it’s one that everybody should pay attention to. If you’re gonna buy a luxury item, you need to pay cash. I can remember after the Great Recession, there was a period of time where all the interest rates on the mortgages were going down, down, down, right? That was how they were trying to help the housing market recover.
And there’s a thing called a jumbo loan. If you buy a really expensive house, you can’t get a regular mortgage, you have to get a jumbo. And those typically are at a higher interest rate. And I remember a really beautiful house got built literally a block from our house. It was down the hill. It was kind of a dream house for me and Wendy. And we looked at it and we’re like, “We can’t afford to really buy it, but interest rates were so low.” And I went to Gary, and I was like,” Gary, if we rented our current house and we paid a little bit down, but we had a big mortgage on this place. We could afford it. What do you think?”
Like jumbo loans, I think we’re at less than 4%, which is crazy low for a big, big mortgage like that. And he just said, “Don’t do it.” And I just thought he would show me math. He just was very clear, “Don’t do it.” I was like, “What do you mean?” He goes, “Because that’s luxury. You’ve got a perfectly good house. You’ve got a great house. You’re trying to upgrade from good to great, from totally functional to way beyond functional, to dream house, and you’re going to use that to do it?” He goes, “Yeah, you could, but I think you might regret it.” In general, always pay cash for luxury.
And when I think about what luxury means, a lot of people say, I need a new couch, I need a new car. I’m going to really interrogate that word “need”. What do you mean you need? You want or you need. Most people when they say I need a new car, want a new car. Their car that’s already paid off, that has no debt attached to it, is perfectly functional. But maybe the stereo’s not as cool as they like anymore, maybe it makes pings every now and then, but it’ll get you from point A to point B just fine.
People with the investor mindset will say, “Okay, I will allow myself to buy a car, but I’m gonna save up and pay cash for it.” And I can tell you, I’ve talked to lots and interviewed lots and lots of millionaires. All of them get to that point where they realize, if I have a functioning vehicle, buying a new one is a luxury. If my car isn’t functioning and I need it to get to work, yes, you’re gonna go and you’re gonna get financing.
That’s the difference. Is it a want or a need? Are you really stepping beyond your basic needs to go into the want territory? Then, try to pay cash for the difference, especially if it’s a big item and you have to incur a lot of debt. That’s a great principle. That’s one of the ways that you’ll prevent, back in the learning, do fewer stupid things. A lot of people who built their wealth by living on less money earned, by living within their means, at some point get overconfident and they get way over their skis. That’s how people lose everything in the end is they forget the discipline that got them there.
All right, so nine habits, we’ve covered them all. We’ll list them in the show notes. The half one is you have to revise and repeat. So, once you’ve kind of built these habits, periodically, we get to do it at least annually in my family, we kind of just built the habit, and it’s kind of a half habit. It’s kind of like on the back of your shampoo bottle, rinse and repeat. Yeah, right, sometimes I do it, sometimes I don’t. Periodically, you need to check in and say, are my goals still valid? Are the investments still wise? Is my saving plan still working for me?
You can make a lot of habits, systems that kind of automate your success in wealth building but if you’re not periodically checking in on them, you could be kind of veering off course or things could be happening that you’re just not aware of. So, just kind of revisit and refine over time. It’s the last one and I called it a half one for a reason because it’s just kind of having the ritual or the discipline to check in periodically. If you don’t visit your money, you may lose it.
People who completely entrust it to other people sometimes lose it. We read about it in the papers all the time. Athletes, artists, that made millions and millions never learned about or investigated how their money was doing, and someone sold from them, or something bad happened, or something unfortunate happened that could have been prevented. Don’t let that be you. Just means you have to check in, you have to say, “How am I doing?” and give yourself the honest truth.
All right. So, I hope you’ve enjoyed this episode on the habits of well-building, nine and a half because I’d really hate to count that last one, but it is important enough to mention, you’re gonna check in over time. If you can only do one, I gotta tell you, you’ve gotta start by living within your means. You’ve gotta live on less than you earn, because if you can’t learn to do that, nothing else is possible.
But what I want to challenge you to do, the actual challenge this week, I want you to go to the1thing.com/networth and download the worksheet. And if you’ve never figured out what your net worth is, positive or negative, big or small, do it. You’re going to put a pin in the ground that says, “This is where I am financially today,” and that becomes your footing to make all of your future decisions. And next week, when I go into figuring out your freedom number, that will loom large. So, it’s not homework, but it is something I promise you, if you start by doing it at least once and then build the habit around it, you will never regret it.
Now, next week, come back. It’ll be the finale of this special three-part series on wealth building. We started with the Path of Money. This week, we covered the habits of wealth building. Next week, we’re going to tell you one of the biggest challenges people have. How do I decide exactly where I want to go? How do I come up with a precise vision of what financial freedom means for me? I’m going to walk you through that. You’re going to love it, and it’s going to help you on this journey. Thanks for being here, I’ll see you next week.
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This podcast is for general informational purposes only. The views, thoughts, and opinions of the guest represent those of the guest, and not KWRI and its affiliates, and should not be construed as financial, economic, legal, tax, or other advice. This podcast is provided without any warranty or guarantee of its accuracy, completeness, timeliness, or results from using the information.
