5 Habits Millionaires Share, Explained: How Each One Works

Intro

Five habits millionaires share, explained: for each one, what it is, how it works, the first step, and its limit. They come from a central bank's newest survey of family finances in one country. Read them as a picture, not a rule. In that survey, every family in the wealthiest tenth was worth at least two and a half million dollars.

The survey shows what is common, not a recipe. Henry only points at what the pages show. Number one: they spend less than they earn.

1. They spend less than they earn

In that survey, saving means one simple thing: spending less than your income over the past year. Its question sets aside big one-time purchases and investments, like a car, when it compares spending with income. About eight in ten of the wealthiest tenth did that, far more often than families overall. The report adds that higher-income families generally save more, which can feed back into more income from what they own.

How it works: money left after bills is what can be saved or invested. An example: if income is 3,000 a month and bills are 2,600, 400 is left to save. The first step, from a markets regulator's investor page: understand the income coming in and the bills you owe every month. Then, it says, build a budget that leaves room to save and invest for the future.

The same page puts it simply: live within your means. An international survey of adults adds two simple practices: plan your income and expenses, and keep a note of spending. What it takes: a clear view of your money each month, and a budget you can actually keep. Its limit: the survey shows what wealthy families do, not that saving alone made them wealthy, and rules differ where you live.

Quick check for number one: a clear view of income and bills, a budget with room, and a note of spending. If this breakdown helps, subscribe: every list here shows how each item works, from official pages. Number two is where that leftover money can go next: a retirement account.

2. They save in a retirement account

Number two: they save in a retirement account. Almost nine in ten of the wealthiest tenth hold one, again far more often than families overall. In the report, these include individual retirement accounts and certain accounts offered through an employer. How it works: the report says these accounts grow through your contributions, your employer's contributions, and rising values.

The first step, from the investor page: some jobs offer workplace retirement plans, and an employer may match your contributions. Where they exist, you can also set up a retirement account yourself. The page suggests automating contributions, so you keep building each time you get paid. An example: a fixed share of each paycheck moves to the account on payday, before it reaches everyday spending.

It also suggests raising contributions when your income grows or your expenses fall. What it takes: patience, because a retirement account serves a long-term goal. Its limit: account types, rules, and tax breaks differ from place to place, so check what exists where you live. Quick check for number two: an account where one exists, automatic contributions, and raises when income grows.

Number three is about timing: when the bills get paid.

3. They pay their bills on time

Number three: they pay their bills on time. Among the wealthiest tenth with debt, more than ninety-nine in a hundred had no payment two months late last year. The survey asks every family with debt about late loan payments in the year before, including two months late or more. How it works: each bill has a due date, and a payment made by then keeps the account current.

An international survey of adults counts paying bills on time among its financially savvy behaviors. The first step, from that survey's questionnaire: make a note of upcoming bills, so none is ever missed. It also lists keeping money for bills apart from everyday spending money. And it lists arranging automatic payments for regular bills.

An example: rent, power, phone, and insurance on one page, each with its due date and its account. What it takes: a complete list of bills and due dates, checked regularly. Its limit: this number counts only payments two months late or more, and rules differ where you live. Quick check for number three: a list of due dates, bill money kept apart, and automatic payments where possible.

Numbers four and five are about owning and owing, the two sides of net worth. Number four is about owning, not only saving.

4. Many of them own a business

Number four: many of them own a business. More than four in ten of the wealthiest tenth own one, far more often than families overall. In the survey, owning a business includes owning part of one. How it works: the report notes a private business is harder to sell quickly, but gives its owner more control.

The first step, from a small business agency's guide, is market research: is there demand, and what do people pay? Next is a business plan. A lean plan, the guide says, sums up only the most important points. Then startup costs, sorted into one-time expenses and monthly expenses.

The guide also gives a break-even formula: fixed costs divided by the difference between price and the cost of each unit. An example: $200 of fixed costs, a price of ten, and a cost of six means fifty sales to break even. And as soon as money moves through the business, the guide says to open a business bank account. Keeping business money separate from personal money, it explains, offers some protection.

What it takes: time, and patience, because the guide notes some companies take years to turn a profit. Its limit: even in the wealthiest tenth, most families do not own a business, and business rules differ where you live. Quick check for number four: research first, a lean plan, startup costs in two lists, and a separate account. Number five is about what they owe.

5. They borrow little next to what they own

Number five: they borrow little next to what they own. As a group, the wealthiest tenth owed less than $4 for every hundred dollars they owned. The report calls this a leverage ratio: total debt compared with the total value of everything owned. An example: a home worth 200,000 with a loan of 50,000 means twenty-five owed for every hundred owned.

It also measures payment-to-income: what goes to debt payments each month, compared with income. How it works: a smaller monthly payment leaves more of each month's income for other goals. The first step comes from the investor page's own example: a car loan. It says a car loan with a high monthly payment may limit your ability to reach other goals, like saving and investing.

The investor page also lists paying down credit card debt among its first steps. What it takes: comparing each new payment with your monthly income before you sign. Its limit: this is a group total, not every family, and borrowing rules differ where you live. Quick check for number five: debt small next to what you own, and payments small next to income.

Recap

Number one: they spend less than they earn, and the first step is a clear view of income and bills. Number two: they save in a retirement account, and the first step is a workplace plan where one is offered. Number three: they pay bills on time, and the first step is a note of every due date. Number four: many own a business, and the first step is market research.

Number five: they borrow little next to what they own, starting with a close look at monthly payments. Which one do you already do? Tell us in the comments. Results vary, rules differ where you live, and this is information only, not financial advice.

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