5 Traits to Become Wealthy

Ever since I started learning about personal finance, I’ve noted that those who are successful at it have 5 traits in common. These 5 traits appear regardless of the path taken. Some people invested in the stock market, either through stock picking, mutual funds, or exchange-traded funds. Others became real estate investors and built a portfolio of rental properties. Then there’s the group of people who only invested in their retirement accounts and grew those a nice 7-figure amount before retirement.

Regardless of the path chosen, the people who accumulated a comfortable cash cushion all appear to have relied on the same 5 traits to become wealthy.

The Word “No”

To my mind, saying “No” is fundamental to achieving your goals. There will always be someone or something who wants your money. If you’re unable to say “No” to the requests that stop you from meeting your priorities, then how will you ever be able to create the life that you want?

Gathering the funds to meet your financial objectives will require you to use the word “No”, a lot. Let’s pretend that you want to start investing in real estate. Unless you can use the strategies Richard Fain discusses in this video, you’ll need a down payment to get into the real estate market. Saving for a down payment may take you a year or two. If you don’t use the word “No” when faced with other opportunities to spend, then it’s going to take you considerably longer to achieve your goal.

Delayed Gratification

This trait is a kissing cousin of the first one. It’s the ability to say “No…not right now.” It’s the ability to delay saying “yes” to whatever it is that you might want.

Instead of going into debt to buy something today, you save up the cash and buy it tomorrow.

Delayed gratification keeps you out of debt. If you pay cash, then you’re not using credit. When you don’t use credit, then you don’t pay interest to a creditor. The beauty of not paying interest is that more of your money can be spent on the pursuit of your life’s dreams.

Be honest with yourself. Wouldn’t you prefer to spend your money on your dreams instead of spending your money to pay off debts for purchases that don’t align with your financial desires?

Sinking Funds

My long-time readers know that I love sinking funds! I use them all the time because they help me to organize and track my money so that I can get what I prioritize most. Between sinking funds and automatic transfers, I very rarely need to think about how I’m going to pay for things. My paycheque lands in my chequing account. My automatic transfers whisk pre-determined amounts of money to each of my sinking funds. Whatever’s left over once the transfers have done their task is mine to spend freely.

• Retirement money? Check!
• Emergency funds? Check!
• Insurance premiums? Check!
• TFSA contribution? Check!
• House renovations? Check!
• Travel money? Check!
• Utilities? Check!
• Charitable donations? Check!

Your priorities will determine your sinking funds. If you want to buy your first home, or your first rental property, then you’ll have a sinking fund for your down payment. This is where you’ll direct a certain portion of your income until you have the down payment that you need to make your purchase. This sinking fund might be in place for one year, two years, five years, or more. It hardly matters. What does matter is that you are saving money towards one of the goals that is most important to you.

Some sinking funds will last longer than other. For example, your retirement funds are just a long-term sinking fund. You save and invest money in a retirement account so that the funds can replace your paycheque when you stop working for a living. However, your sinking fund for utilities exists to hold money that will be spent within the next 30 days. The money goes in – the bills arrive – the money goes out to pay the bills.

Whether designed to pay for long-term goals like retirement or financial independence, or to pay for short-term goals like paying your utilities, sinking funds are integral part of your financial toolbox.

Living Below Your Means

If you earn $60,000 and spend every penny, then there’s no way to build wealth. Your net worth remains at $0 because nothing is set aside for investing.

However, earning $60,000 and spending $59,000 means that there’s $1,000 available for investing. That $1,000 is available because you made the choice to live below your means. The money can go towards the down payment on a real estate purchase. It can be invested for retirement. It can be the seed money for a business.

Leftover money doesn’t happen by accident. Trust me – there is no amount of money that cannot be spent. The more you earn, the more spending opportunities you will find. The duty to impose spending limits in your life rests solely on your shoulders .

Money

Surprised that I saved this one for last?

You shouldn’t be. Its priority in this list is irrelevant. Whether you earn a little or a lot, wealth will always elude you if you can’t implement the first 4 traits that I’ve already discussed.

Let’s say you earn $250,000 every month…but you don’t know how to say “No” when presented with the opportunity to rent a yacht for the week to party in Monaco. And you’ll need to rent a private jet to get there since you can’t rely on traditional airlines to get you there on time. Let’s face it – when you’re earning $3Million per year, do you really want to travel on Air Canada? Or even British Airways if you can afford to rent a private jet for you and a few of your closest friends?

Let’s say that you earn $35,000 in a year, and you manage to set aside $3,000. You are living beneath your means. Those dollars might be allocated between a variety of sinking funds. You employed the trait of delayed gratification. The reason you have that $3,000 in the first place is because you said “No” to the various requests for your money.

Unless you impose some kind of spending limit on yourself, the money will be gone. It doesn’t matter how much you earn. This is why the simple act of earning money is insufficient proof that a person is also building wealth. It takes all 5 traits to become wealthy.

Without the first 4 traits, no amount of money will make you wealthy because you will spend it all. You cannot be financially wealthy without money.