By T.J. Porter, WCI ContributorMany physicians choose to go into medicine out of a desire to help people, but the high compensation is another major draw to the profession. Still, compensation is different than wealth. Say you make millions of dollars a year. If you still spend every penny you make, you’ll be stuck with your nose to the grindstone, working for that next paycheck forever.
People who successfully build wealth have a specific mindset and behaviors that help them make the most of the money they earn. That wealth then affords them the flexibility to live the life they want.
Common Behaviors of the Wealthy
These are some behaviors that are common among wealthy people and that are worth incorporating into your own life.
Long-Term Thinking
One of the key behaviors of wealthy people that helps them succeed is always thinking about the long term. They still make decisions based on what that decision will lead to in the next day, week, or year. But they're also thinking five, 10, or 20 years down the road.
For example, the time to start planning and saving for retirement isn’t when you’re 55 and hoping to quit working at 60. You should start planning from the day you get your first paycheck. The sooner you can start investing your money in the market and fund your retirement accounts, the more quickly you’ll watch your account balance grow.
Another example can be seen with cars. Someone thinking about the long term will buy a reasonably priced, reliable car. They’ll also get it inspected by a mechanic and tuned up regularly. Someone who isn’t a long-term thinker might drive their car until it breaks, repair it, and then drive until it breaks again. Regular maintenance costs money now, but in the long run, it’s cheaper than waiting for a major problem.
Long-term thinking manifests in many ways. If you hope to build wealth, it’s essential to make decisions based on your long-term desires and goals rather than what’s easiest at the moment.
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Frugality and Discipline
Wealthy people, despite the large amounts of money they have, can be notoriously frugal. Warren Buffett famously lets the market decide his breakfast, choosing to splurge on a “pricey” bacon, egg, and cheese biscuit from McDonald’s only when the market is doing well.
Frugality in this sense isn’t about pinching pennies everywhere you go. It’s OK to spend the money you’ve earned and saved; it’s about not frittering that money away. If you're still building wealth and are not financially independent, you can take this approach: instead of going to a luxury restaurant and spending hundreds or thousands of dollars, go to a less expensive one that costs less than $100 per person. Buy a nice, reliable car instead of a high-priced sports car.
Discipline is a related behavior or habit of the wealthy. People who amass wealth are very disciplined in their work and their finances. They set goals and work to achieve them. They set budgets and stick to them. In all aspects of your life, be disciplined and do your best to focus on the task at hand rather than being lackadaisical.
Acquiring Assets Rather Than Liabilities
Another common refrain, and behavior, for wealthy people is to focus on acquiring assets rather than liabilities.
Assets are things that work for you and increase in value over time. Liabilities, on the other hand, only cost you money in the long run. Instead of going out and buying an expensive boat that will cost you thousands of dollars each year in gas, maintenance, and storage, invest that money in the market or real estate that will appreciate in value or provide a cash flow.
If you put your money to work making more money instead of using it to buy things that will force you to spend more, your wealth will grow on its own over time.
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Paying Themselves First
Have you ever opened your wallet to find that you have more cash in it than expected? It’s a nice feeling, but afterward, you’ve probably felt like that money is burning a hole in your pocket. After all, if you have spare cash, why not spend it on something fun?
Rich people tend to pay themselves first. That doesn’t mean they put money in their wallet right after getting their paycheck—it actually means the opposite. Paying yourself first means that the first thing you do with every paycheck is put some of the money to work for you, such as by investing in the stock market or adding it to your retirement accounts. Whatever is left after that can be used for paying the bills and as fun money.
Most employers make it easy to pay yourself first these days. You can set up automated retirement account contributions from your paycheck or have direct deposits move money straight to your investment accounts. Paying yourself first will help you save more money by reducing the temptation to overspend and giving you more incentive to stick to your budget.
Using Debt Effectively
Many people think that wealthy people avoid debt at all costs, but the opposite is often true. Instead, the wealthy focus on using debt carefully and effectively.
For example, mortgages are often described as good debt because they let you borrow money at a relatively low cost to buy a home, which typically appreciates in value. If you get a loan at 4% interest and your home increases in value by 5% per year, that debt is helping you make money in the long run, even if you’re paying interest in the short term.
Wealthy people only use debt in this way, borrowing money at low rates to buy assets that appreciate at a higher rate than the interest rate of the loan. They avoid things like carrying a credit card balance and personal loans that only increase the overall cost of their purchases.
The Bottom Line
Building wealth requires a few key ingredients. One is a way to make a good amount of money, which isn’t something that everybody can access. Fortunately for physicians, compensation for doctors is generally quite high and more than sufficient to build long-term wealth even after accounting for the high cost of schooling and student debt.
Having good financial habits is another key ingredient for building wealth. Think about these habits of wealthy people and how you can incorporate them into your life. They’ll help you on your financial journey as you try to build wealth.
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