How you prioritize what you do with the money you earn, dictates whether or not you will be sound financially. As I learned from my Rich Habits research, Saver-Investor Millionaires do things very differently from non-millionaires, when it comes to prioritizing their spending.
For the average non-millionaires out there, this is how they prioritize their spending:
#1 Priority – Short-Term Needs/Wants
- Pay bills to meet standard of living – paid for out of earnings
- Schooling for children (Includes college costs, if children are in college) – paid for out of earnings
- Buy home-related things, with any excess earnings
#2 Priority – Long-Term Needs/Wants
- General Savings
- Retirement Savings
- College Savings
For the average Saver-Investor Millionaire in my Rich Habits Study, this is how they prioritize their spending:
#1 Priority – Long-Term Needs/Wants
- General Savings
- Retirement Savings
- School Savings (this includes college savings)
#2 Priority – Short-Term Needs/Wants
- Pay bills to meet standard of living – paid for out of earnings. If unable to meet their expenses, they will reduce their standard of living or seek to earn more money by creating a second stream of income (2nd job or side business)
- Schooling for children – paid for out of School Savings
- Buy home-related things – paid for with any excess earnings
Because the spending priorities for non-millionaires is backwards and focused on the short-term, they never adjust their standard of living and wind up saving very little for their future.
Because Saver-Investor millionaires focus their spending on the long-term, they are able to pivot and make adjustments to their standard of living in order to continue to create savings, which they are able to invest for the long-term.
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