Have you ever thought about what it would be like to be a part of the 1%? Well, if you currently make over $500,000 a year in the United States then you already know what it’s like and if you don’t then you still have some work to do. For those striving to join this group, you may be wondering what allows just under 1.5 million Americans to earn this large amount of money and I’m here to give you the keys to the income castle and share the habits that these few individuals possess which you can adopt to see your own expansion of financial wealth!
Habit #1: Saving 70% or more of their income
Ask most 1% earners if they follow the golden rule of saving which requires you to save 10% of your income and most will laugh in your face. While saving 10% of your income is a mark of achievement for the average person, the rich understand that meeting that saving standard won’t do much in terms of allowing them to get ahead financially.
So, how much do the rich among us save? Of course this percentage will vary however, generally speaking, the number falls into an area where most of the money they earn is retained. Now, I know what some people are going to say, “But Adam, if this is true then why did (insert bankrupt celebrity) go broke” and yes there are exceptions to every rule but for the most part, high earners are saving the bulk of their income.
Now, here’s the catch when it comes to their savings efforts. I am not going to sit here and peddle you the idea that most 1% earners are cashing coupons and cutting out Starbucks coffees. Again, there are exceptions to every rule but for most 1% individuals, their major savings accomplishments stem from having significantly large incomes. For instance, if you’re earning $1M a month, you can live an insanely lavish lifestyle off $100,000 a month and still be saving 90% of your income. In short, the rich save large proportions of their income not because of their airtight saving practices but because they far out earn their spending and this is a practice you too should aim to employ!
Habit #2: Surrounding themselves with other 1% people
You may or may not have realized it but people who are in the 1% tend to roll together and logically this makes sense. For example, there probably isn’t much that a low-income earner and a high income earner have in common. The two probably can’t discuss that new hedge fund that just got released and while one is talking about how they saved $2 on apples this week the other is complaining that their Porsche broke down again. I hate to say it but income disparity can make relationships quite the challenge.
Now, this isn’t to say that rich people only interact with other rich individuals however they are acutely aware of what everyone they spend time with brings to the table and for those who are wealthy and are looking to continue to grow their riches, spending time with people who can support that cause simply makes good financial sense. For instance, the average Joe probably can’t add a lot of value in terms of how someone can scale up their business from seven to eight figures a year but a billionaire probably can.
The other sad reality that arises when people with two significantly different incomes spend time with one another is the power struggle that takes place. Given how important money is in the world we live in, the wealthier individuals in most social situations will be expected to lead and will likely be asked to bear the burden of any financial obligations that are presented. For example, if a middle and upper class person go out to eat, you know there will be some sort of expectation on the wealthier individual to pick up the tab. To avoid this awkwardness and unfair set of expectations, the 1% tend to spend time together to ensure they are being respected solely for themselves as a person and not how much money they have in the bank.
Habit #3: Understanding the cost of their decisions
While being a part of the 1% is predicated on how much you earn, if you study enough people in this group you will probably come to realize that they are hyper aware of the costs they incur. Now, I don’t mean that they stay up at night kicking themselves that they went to Starbucks for a third day in a row — although I’m sure some super stingy rich people do exist. What I am referring to is the fact that many 1% individuals have a much greater appreciation for the opportunity costs that exist in their life.
Now, if you’re unfamiliar, let me break down what opportunity cost is and how the wealthy among us use this principle to further improve their financial position. Opportunity cost is the benefit that’s given up when another alternative is chosen. For example, if you decide to watch Netflix for 3 hours tonight, you’re giving up 3 hours spent playing video games or reading that book that’s been collecting dust on your shelf for months. From a monetary perspective, the opportunity costs that surround us are plentiful. For instance, putting down 30% on your home purchase versus the required 20% incurs an opportunity cost as that extra 10% is being used to avoid a low-interest debt when it could be used to invest in a lucrative stock instead.
If you ask me, understanding how the deployment of your most precious resources impacts your bottom line is one of the major differentiators between the rich and the rest. When you start to compound one smart financial decision after another, you can see how this leads to financial prosperity over time and in the next habit we will look one one trade-off that puts the 1% in a league of their own.
Habit #4: Valuing time over money
Let me tell you something you already know; time is our most valuable resource. What’s funny about this well-known fact is that every single human on Earth has the same 24 hours in the day yet two people of the same age with the same amount of days lived can have two dramatically different financial positions. Why is this? Because some people understand and respect the value of their time more than others.
Let me ask you this. Have you ever thought about why most executives have assistants and secretaries? Is it because there is some mandatory requirement for C-suite employees to have this type of help or is it because this model actually leads to more productivity and financial results? If you ask me, it’s the latter.
Those who get ahead financially deploy their money and their time differently than the rest. For instance, instead of spending a whole weekend mowing the land and pulling weeds out of their garden, they pay a landscaper to do it for them while they exchange their time in more lucrative ways. Think about it, does it make sense to clean your house for 3 hours when you could pay someone $100 to do it for you? Sure, it could if you aren’t a high income earner but if you are someone who commands $1,000 an hour in your craft then this trade off of time becomes much more questionable.
In short, the rich understand that proper use of time is key to getting ahead financially. This is also why they tend to steer clear of time-wasting activities that provide little to no value in their life. From my personal experience, those getting ahead financially don’t know who won the latest Academy Award for best picture or even know how Game of Thrones ended. They are focused on their most important tasks which are typically the ones that make them the most amount of money!
Habit #5: Relying on both active and passive income
Becoming a 1% earner is going to take a lot of work, that is until it takes no work at all. What do I mean by this? Well, like the rest of the population, people in the 1% often start their own wealth building journeys by putting in a ton of work and earning active income. This can be in the form of climbing the corporate ladder or building up a business. Unless your wealth is gifted to you then work will be required to make the financial strides you aim to achieve. However, for people in the 1%, they may start by earning with their body but soon they transition to earning with their mind. Now, what do I mean by earning with their mind? Let me explain.
Earning with your mind doesn’t mean that you suddenly take up a gig as a psychic or a mind reader. Earning with your mind simply entails thinking about how you can use your current resources to replace your active money making efforts. Let me share an example to clarify what I mean. If you are building a business, you will probably end up working a ton of hours to get it off the ground. However, once your business is in the black you can start to drum up ways to separate your time from your income. In this case, it could come in the form of hiring a manager and employees to run your business while you watch it grow from the sidelines. Alternatively, you may grow tired of clocking into work every day and wonder if there is another way of making money without having to listen to your boss for 8 or more hours a day. In this case, you may decide that over time, you will funnel your money into dividend stocks and real estate which will act as your rat race escape plan once your assets can fund your living expenses now and into the future.
Simply put, most people in the 1% see past the idea of trading time for money and let their money work for them and this is how they come to leverage both active and passive income to separate themselves and grow true wealth.
Habit #6: Building scalable businesses
Take a look at the Forbes list of the richest people in the world and one commonality amongst all these individuals will stick out like a sore thumb: they are all business owners. Now, sure some will own businesses in the traditional sense of having built up a business from scratch while others may be owners of businesses by being major stakeholders but the principle remains the same, if you want to reach your goal financial destination, you need to be using the right vehicle to get there.
I still find it funny that so many people complain that they are falling behind in their financial goals when they’ve effectively set themselves up to fail. Now, besides people’s inclinations to rack up large amounts of consumer debt and buy houses three times the size of what they need, I am mostly talking about their over-reliance on their job to lead them to a life of riches. What separates those who gain wealth in life and those who don’t are the vehicles they choose to get them to their lofty financial goals. In most cases, a 9–5 job isn’t a car you can drive down the financial freedom highway.
It’s for this reason that people who achieve high levels of wealth opt to build businesses. Most business models have a unique trait that a 9 to 5 job doesn’t: scalability. Scalability is the ability to grow both in terms of output and revenues. For instance, logically speaking, a business with 10 employees can produce more output and generate more revenues than a company of one. From a broader perspective, if you own a business and collect 20% of your $1 million revenue, that will probably have you earning more than you would at a job and as the company grows, your income will grow as well.
Habit #7: Being patient
When was the last time you waited more than a couple days for that Amazon order to come in or more than a few seconds for a website to load? In the world we live in today, speed is what we want, however this inclination to get everything in an instant has eroded people’s ability to deploy the most important trait that is required when building wealth: patience. They say that it takes 25 years to be 25 years old but given the world of instant access we live in today, many people fail to appreciate that all good things take time. Now, I’m no master of patience. I’ve been known to pull my food out of the microwave and eat it cold because waiting another 2 minutes was simply unbearable. However, in my 30 years on Earth, anything of value I’ve achieved has taken time. For instance, getting my CPA designation took a lifetime of studying and building a YouTube channel with over 100,000 subscribers didn’t exactly happen overnight. Simply put, those who understand how time plays into financial success are bound to reap it.
This is why if you want to become wealthy, you must fine tune your patience along with all of your other skills. Building a business takes time. Becoming an executive takes time. Becoming the best nurse, accountant or engineer takes time. It took the richest people in the world today decades, not days, months or a couple of years to get where they are today. When you can learn to make decisions that look past today and maintain a vision for tomorrow, your chances of success improve greatly. This may come in the form of saving versus spending or working versus sleeping in. When you make these long-term decisions and value the power of patience you allow yourself to get one step closer to joining the 1% elite.