Did you know that there are currently 937 billionaires in the world?  Compared to the 6 billion people that live on our planet, that’s an extremely small number.  So what do these folks seem to have in common? According to an article on globeinvestor.com, most billionaires share 5 common traits: entrepreneurism, frugality, vision, risk-taking, and patience.

So billionaires are entrepreneurs with a vision who are not afraid to take risks, but are patient enough to know when it’s the right time to make their move, and even though they may be rolling in the dough, they don’t spend their money foolishly.  That doesn’t sound so hard, so why do so few of us end up to be billionaires, or even millionaires for that matter?

I think it’s because most of us are afraid to take the first step.  We are afraid that we will fail and feel like a loser.  We are afraid to quit our day jobs or we think that we don’t dare challenge the status quo by doing something completely unique.  The truth is I think every one of us has the potential to do something great.  That doesn’t mean we are all destined to become billionaires, but we can definitely benefit by putting their habits into practice.

Don’t be afraid to take calculated risks, be careful with how you spend your money, don’t make hasty decisions that you will regret, and make sure you have a strong vision that will keep you going when the going gets tough.  Don’t be afraid to fail and feel free to let your entrepreneurial spirit soar.   Chances are that a lot of your friends and family will be concerned about you and make discourage you from trying something new, but sometimes you need to take a leap of faith and follow your heart.  After all, that’s what most of the 937 billionaires did, and look where they ended up!

It doesn’t seem to matter how much money a person earns, if they don’t work on developing effective money management skills, they can end up bankrupt.  I was reading an article on Yahoo! that talked about seven professional athletes who squandered away their money on all kinds of gadgets and doodads rather than investing it wisely.

Although it may seem like it would be easier to manage your money if you had a lot of it, it’s obvious from reading the article that having more money isn’t the solution.  Instead, what it takes is a disciplined approach; creating a budget, paying yourself first, controlling your spending, and most importantly, not spending more than you earn.  Although people who make a lot of money may not have to be as strict with their spending, they still need to follow the basic principles of effective money management; otherwise they could end up like Scottie Pippen and Lenny Dykstra.

These pros all had one thing in common and that is consumerism.  They bought whatever their hearts desired without any thought to whether it was a wise investment.  Luxury cars, gambling, massive properties, and much more were all part and parcel of what drove these folks to bankruptcy or close to it.

Unfortunately it’s not just the pros who end up in trouble financially.  Many regular working folks also find themselves stuck in a financial rut of overwhelming debt due to thinking like a consumer.  The biggest key to financial success is to simply spend less than you earn.  If you can manage that, you will always be ahead of the game, and quite likely, you will end up with more money in your pocket than some of these professional athletes even if you earn a thousand times less than them.

Think like a steward rather than a consumer and you will be able to achieve your financial goals and pursue your dreams.  It doesn’t take a lot of money, as it’s all dependent on how you manage what you have.

What is your net worth?

To put it simply, if you were to sell everything you owned and pay off all your debts, the amount that you would be left with is your net worth.  Purchasing assets and paying off debts are both ways you can increase your net worth.

Purchasing Assets

Not everything you purchase will help you build your net worth.  For example, purchasing a new car doesn’t increase your net worth as it quickly depreciates in value.  You may have paid $20,000 for it but within a year or two it could be worth four to five thousand dollars less.

If you want to build your net worth, you will need to purchase assets that will ultimately increase in value over time such as works of art, rare coins, handmade Persian rugs, etc.  Investing in real estate is another way to build up your net worth, even if you do need to take on more debt in order to do so.

Paying Off Debts

Another way to build your net worth is to pay off your debts including car loans, student loans, credit cards, and your mortgage.  It’s always best to pay off high interest debt first, as well as debt where the interest is not tax deductible.

Using Debt To Build Your Net Worth

You can also use debt to help build your net worth, as long as the debt is being used to purchase an asset that will appreciate in value. Although you cannot know for sure whether the asset will appreciate, if you focus on assets that generally do, you will be far more successful in building your net worth than if you purchase assets that always depreciate.

Habits That Will Help You Build Your Net Worth

Building your net worth takes time and a disciplined strategy.  It’s important to develop good habits such as the ones below in order to build up your net worth:

1.  Pay off high interest and non tax deductible debt.

2.  Set up preauthorized payments into your investment accounts and pay yourself first.

3.  Build up both an emergency fund and your RRSP.

4.  Stick to your budget.

5.  Be a smart consumer.  Shop around and do your research for major purchases.  Look for deals and rebates.

6.  If you’re self-employed, make sure you are saving enough to pay your income tax at the end of the year.

7.  Use your credit cards wisely.  Make sure to pay off your entire balance owing every month to avoid paying interest.

8.  Pay all of your bills on time.  Set up preauthorized payments directly from your bank account.

What does it mean to pay yourself first?  Rather than taking care of your bills and expenses each month andthen seeing if you have any money left over to invest and save, paying yourself first means you put aside some money for saving/investing as soon as you get paid!  If you do that, then you know you will be able to tuck some money away for retirement as well as build up an emergency fund.

An easy way to pay yourself first is to set up an automatic withdrawal from your checking account on the same day you get paid.  That way you won’t even miss the money because it will be like you never had it in the first place.

Even if you are on a tight budget it is important to pay yourself first.  It may seem impossible on paper, but you need to do it.  In Rich Dad Poor Dad, Robert Kiyosaki talks about a time when he and his wife had almost no money but they still insisted on paying themselves before paying their bills.  Their bookkeeper at the time thought they were nuts.  But look at them now!  They have successfully learned what habits contribute to building wealth.

If you’re not already paying yourself first, I recommend that you take some time to look at your budget and set up an automatic withdrawal each month to start saving and investing for the future, even if all you can do is put aside $25 per month.  It’s better than nothing, and as you progress you can increase the amount you invest.

Building wealth has very little to do with how much you earn, and a whole lot to do with how you manage the money that you earn. People with six figure incomes can be living from paycheck to paycheck while people with modest incomes can be accumulating a great deal of wealth. Here are some behaviors that will help you to accumulate wealth:

1. Pay as little tax as possible by taking advantage of the tax breaks and tax rules.

2. If you have difficulty saving, think of creative ways to eliminate wasteful expenditures. The key is to always spend less than you earn.

3. If you get a raise, bonus, or a large tax refund, don’t spend it just because you have it. Instead, save it and invest it wisely. You don’t have to increase your expenditures just because you suddenly earn more money. Most millionaires live well below their means, driving older vehicles and living in modest homes.

4. Make contributions to tax deferred retirement plans so you can get some of your money back. Use that money to pay off a chunk of your mortgage or other debt.

5. Credit can either be used to set you back financially or it can be used to help you build wealth. Rather than racking up credit card debt to purchase consumer items (bad debt), use debt to finance an investment in real estate (good debt). It’s important to be mindful of the difference between good and bad debt. Good debt is debt used to purchase assets that can generate cash flow. Bad debt is used to purchase liabilities such as furniture that will depreciate in value.