Last Modified on September 25, 2019

Business magnate and philanthropist, Warren Buffett once said, “Someone is sitting in the shade today because someone planted a tree a long time ago.”

Most people aspire to be millionaires living in big mansions and owning precious assets. But being wealthy is not just limited to living life king-size. The rich and famous personalities around the world, who continue to inspire thousands of people, are successful because of the financial decisions they made at the right time. Building wealth constitutes more than putting aside your money in a savings account. It is about living frugally, taking calculated risks, and most importantly, working hard towards conserving your wealth. 

6 Frugal and smart habits of the rich you can incorporate in your life to Maximize your Wealth

1. Don’t buy an expensive home

Warren Buffett, the CEO of Berkshire Hathaway, is a billionaire. But he still lives in the same house he bought for $31,500 in 1958. He says he hasn’t felt the need to spend on another home. Many people buy expensive homes due to social status or peer pressure and end up spending a huge part of their wealth on mortgage. 

Try not to spend more than 40% of your income on your home. Real estate is a great investment, but if you are spending more than 40% of your earnings on EMIs, you are depleting your wealth rather than building it. 

2. Stay away from car loans

Spending on expensive cars will not make you rich. It is important to understand that cars are not assets but are hidden liabilities. Not only do you pay interest on car loans, but also regularly spend on gas and maintenance. British billionaire, John Caudwell has a net worth of 2.2 billion, but rides a bike for 14 miles to work every day. Alice Walton, an heiress to the fortune of Walmart, and one of the wealthiest women in the world, drives a 2006 Ford F-150 King Ranch. 

Instead of buying a car, try to use public transport. It is a cost-effective and more sustainable way of living. If you must buy a car, pick a car that does not require you to spend more than 5% of your income in paying EMIs. 

3. You can do without luxury brands

Watching famous celebrities wearing designer clothes is fascinating, but you must understand that most of these clothes are borrowed for events and not always purchased. The choice of clothes also depends on a person’s profession. It is normal for a Hollywood actor to wear expensive shoes, but may not be necessary for someone at a regular 9 to 5 job. Ingvar Kamprad, the founder of Ikea doesn’t believe in splurging on expensive clothing. He prefers to shop at a flea market instead. Bill Gates, the founder of Microsoft, with a net worth of 3.5 billion, still wears a $ 10 watch.

It is easy to get carried away. Surprisingly, most people buy material possessions from credit cards. However, instead of spending on luxury products, you can set up your emergency fund or increase your monthly 401 (k) contribution. 

4. DIY – Do it yourself

In the current day and age, we like to outsource every chore. Think of the money you pay to the gardener, at a car wash, or to your hairstylist. These expenses may seem small, but they do amount to a huge chunk of your income over the years. Businessman and billionaire John Caudwell cuts his own hair. Instead of hiring other people, try to do as many things as you can by yourself. For example, gardening can be a fun family activity that you can do with your loved ones.

5. Have more than one source of income

Rich people don’t depend on only one source of income. Take the example of Kylie Jenner, who recently became the youngest billionaire in the world at the age of 21. She may have started her career as a model, but later branched into entrepreneurship. Having multiple sources of income increases your chances of accumulating wealth. Look for ways to generate more income. If you have a talent or a hobby, use it to earn more money. You can set up a side business or take a part-time job over the weekends.

6. Take professional advice

Nobody is a jack of all trades. While you may work hard to earn money, you may not know how and where to invest it correctly. You must never shy away from seeking guidance. Remember that rich people are constantly surrounded by legal, financial, and entrepreneurial experts to guide them from time to time.

Think of the bigger picture and seek out help from a financial advisor to know about the best ways to increase your wealth. While cost-cutting is good, saving a few dollars of fees will not make you rich. But the right advice and investment can bring in huge returns. 

To sum it up

Understanding the difference between splurging and spending is very important. Being rich is not synonymous with buying extravagant homes and fancy clothes. Learn to limit your expenses to the things that you truly require. Differentiate between your needs and wants and seek the right help and information that can help your money grow. 

Want to review your financial habits? You can approach financial advisors for help. They will help you embark on the right financial path.