4 Smart Money Habits to Help You Earn Your First Million Dollars

4 minute read

So, you want to be a millionaire? Conventional wisdom dictates
that to save money, you need to squirrel away as much as possible while
drastically reducing your spending, period. While there is some merit to
that strategy, the smarter way to grow your wealth is to cultivate
careful spending habits that will allow you to maximize your savings
without cramping your style.

Here are four smart spending habits to help you save your first million dollars.

1. Categorize your expenses and monitor your spending.

One
easy way to keep your finger on the pulse of your spending habits is to
break down your expenses into categories. Garrett Gunderson, CEO of
WealthFactory.com suggests a framework consisting of four expense categories: destructive, productive, protective, and lifestyle.

Destructive
expenses refer to, “Overdraft fees, using credit to consume, spending
on vices, or products or services you don’t use or that don’t add value
to your life,” according to Gunderson. These are financial sinkholes
that do not offer any benefits to you.

Productive expenses are
those that will make you money, like hiring the ideal employee or being
an early investor in a company or product that goes viral. These
expenditures are also ones that can improve your overall well-being like
education, nutritious food and fitness classes.

Protective expenses, like health, life and auto insurance, are associated with preserving yourself and your family.

Last, lifestyle expenses are comprised of the fun things in life like vacations, the latest technology and new clothes.

By
categorizing your expenses, you can easily see how to cut destructive
expenses, splurge on productive and protective expenses, and spend
conservatively on lifestyle expenses. If you make the right choices in
setting limits on your spending, your productive expenses will pay for
themselves and then some. Make sure to monitor your spending carefully
and, soon, good habits (and savings!) will emerge.

Related: 3 Money-Saving Apps That Won’t Cost You a Dime

2. Avoid emotional spending.

We
all have those days where we feel down in the dumps, and we rationalize
that we will surely feel better after buying a new pair of shoes or
some gourmet chocolate.

However, Kevin O’Leary of ABC’s Shark Tank and O’Leary Financial group urges,
“Don’t go shopping to change your mood. It might make you feel better
in the short term, but I promise: the long-term fulfillment of saving
and growing your money far outweighs the temporary satisfaction of
retail therapy.”

Instead, try to regulate your emotions by talking
with friends and family, exercising, watching a documentary, or
reading. Or, for a more harm-reductionist approach, try planning small,
regular outings for yourself using your lifestyle expense budget. For
example, plan to get a fancy massage at the spa or indulge in a lavish
meal once a month instead of every time you feel stressed. Developing
good coping strategies will eliminate bad spending habits and help you
save money quickly.

Related: How Successful People Stay Calm

3. Choose and pay off your loans strategically.

Loans
can be terrifying. Before becoming anxious about how to pay off your
personal or business loans once you get them, take the time to research
the different types of loans out there. Entrepreneur offers a great step-by-step guide on how to navigate the loan process and weigh the pros and cons of several loan options.

If you are already in the throes of debt, Diana Ransom from The Wall Street Journal’s Smart Money magazine proposes
prioritizing debt repayment for the loan with the highest interest rate
first and then consider consolidating your loans into one longer-term
package. Paying off one larger loan will allow you to avoid wasting
money on costs accrued on many smaller loans.

In more dire
situations, call your creditors and seek help from legitimate
debt-relief agencies. Finding the right strategy for paying off your
loans can enable you to save thousands on interest rates and possible
legal fees. Whether your loans are business or personal, be intentional
and deliberate when planning your approach to getting out of debt.

Related: 10 Questions to Ask Before Applying for a Bank Loan

4. Invest wisely.

Neil McCarthy, a research chemist, made his first million dollars solely by investing in the stock market in the 1990s. Paul Glandorf, a pipe fitter and construction worker, took investing seriously as a retiree and is now sitting on a huge pile of money. The lesson here is clear: know how the stock market works.

After
you do your homework and have a good grasp of the stock market, start
monitoring stocks for yourself and experiment with making investments. Robinhood is
a neat app that allows you to trade stocks for free and makes it easy
to keep track of companies you are interested in but haven’t put money
into yet.

Once you get a hang of trading, sales expert Grant Cardone advocates diversifying carefully and committing fully to your causes. In an interview with Entrepreneur,
he said, “You want to find one or two spaces you completely understand,
that can’t be destroyed, and go all in. That’s how people get rich.
People don’t get rich by tip-toeing in with $100 investments all over
the place.“ By spending wisely in the stock market, you can
strategically multiply your initial investments and be well on your way
to becoming a millionaire.