3 Habits for Better Wealth
Wisdom Letter #74 | Habits for A Better You
Hello and Welcome to The Wisdom Project. Your weekly dose of human curated wisdom in a world full of algorithmic noise.
We conclude our series today — “Habits for A Better You”.
We have talked about better mental health and better physical health over the last couple of weeks and today we will talk about achieving better financial health.
These are simple actionable ideas that you can implement no matter what your income or expenses are.
So let’s get into it, here are 3 Habits for Better Wealth and how to build them.
Read On.
1. Track Your Money
“One accurate measurement is worth a thousand expert opinions”
The first step of managing your money is knowing where it is right now.
Money has a tendency to fall through nooks and crannies without us realizing it. Tiny expenses that we ignore can mount up to a significant amount over the course of a year.
I’ve said this before, will say it again, what gets measured gets improved.
It might seem silly, but it works.
Some tips to better track your money👇
Make an excel sheet with details of all your financial instruments.
Right from your savings accounts to your loans and insurance products.
Your retirement savings and your stock investments. Your mutual funds and your fixed income instruments.
Everything.
(Don’t rely on an app to do this, that’s too much data)
Track your expenses. Try to do it to the last penny. No it’s not miserly.
Especially track your credit card expenses or any digital transactions that you do.
We tend to spend more when direct cash is not involved.
Update these numbers at regular intervals. Set aside 30 mins a month to do this. Monthly or quarterly works best. Weekly is too short and annually is too long.
Just entering these details regularly will give you a better sense of your financial health and will give you insights on where you can improve.
“Measurement is the first step that leads to control and eventually to improvement”
2. Cap your Living Expenses
“Beware of small expenses, a small leak will sink a great ship”
The part of your income that you save today will be the seed for the entire income you will earn in the future.
“Save more than you spend” is obvious advice that is misleading.
When you start to earn initially, it’s very difficult to implement, as you grow it becomes easier, and after a while it becomes effortless, but also pointless.
The idea is not to break your income in percentages like 50:50 save and spend.
If your starting income is X, 50% of X is perhaps too difficult to save, while 50% of 100X is perhaps too much to spend.
Rather, the idea is to identify at what exact amount you can say — “Yup that’s all I’ll even need to live comfortably, everything else I can save”
That amount can be X, or 5X or 10X. But it will be ab absolute amount.
Some tips to identify your cost of living—
List down all your expenses of the last year. Identify your “Needs” , “Wants” and “WTFs”.
The “Needs” are what you can’t live without(literally!, like food, water and the internet).
The “Wants” are what you can live without, but would still be nice to have.
The “WTFs” are the expenses that an old friend will look at and say — “WTF man! what were you thinking”. (You know what these are)
Cost of living = All your “Needs” + a percentage of your “Wants” + a tiny sliver of your “WTFs”.
You will get a ballpark number. Adjust this to inflation for every year, add some cushion if it makes you feel uncomfortable. The idea is to think hard and arrive at a reasonable number. And then stick to it.
After this, every expense you make needs to go into one of these three baskets. Train yourself to look at expenses like that.
After a point, money has zero marginal utility. Beyond that point, spending more doesn’t give you more satisfaction.
Identify that point, and stay well within it, so all your expenses add meaning to your life.
“He Who buys what he does not need, steals from himself”
3. Diversify Your Income
“If you don’t find a way to earn while you sleep you will keep working till the day you die”
This is not as much a habit, as it’s a mindset. But it can be practiced like a habit.
Relying on a single source of income, even if it’s a “stable” job, is the riskiest thing you can do.
You need to have multiple avenues to earn money from. Only then will you be able to pay a decent salary to your future self.
Some avenues to diversify your income:
Invest.
In stocks, bonds, real estate, precious metals, commodities, BITCOIN! Anything that you can get your head around, invest in that domain.
Own a piece of a business.
Buy stocks of great companies or build a great company yourself.
Owning great businesses is the only way to build long lasting wealth. The other way is to inherit them of course!
If you get a regular salary, learn to look beyond it.
Your salary is not your net worth, in fact it’s a cap on your net worth.
As you do well at your job and get great increments year after year, your salary becomes your limiting factor. You might think you are getting a lot of money, but your employer is making a lot more money off your work.
Think like your employer. You are worth a lot more than you salary.
There is an element of risk in any avenue you put your money in, yes you can lose it all. But as I said earlier, there is greater risk in relying on a single source of money.
You can lose that too!
“If we never save money or invest, we will always be poor. No matter how much we earn”
Thank you for reading, hope these simple habits help you build better wealth.
Here’s a quote worth thinking about from our favorite habits book—
“You expect to make progress in a linear fashion and it’s frustrating how ineffective changes can seem during the first days, weeks, and even months.
It doesn’t feel like you are going anywhere.
It’s a hallmark of any compounding process: the most powerful outcomes are delayed. “
— James Clear, Atomic Habits
Announcement
We love Atomic Habits. I think it’s the best book out there to bring about meaningful positive change to your life.
The longevity of this newsletter(74 weeks, yay!) is a result of a lot of insights that we gathered from this book.
It’s also one of the easiest books to read and put into practice.
Over the next month(all of February) we are going to be re-reading Atomic Habits. Every week we will share insights from different parts of the book. We will go chronologically.
If you haven’t read it yet, or even if you have, get a copy and read along with us. And if you don’t have a reading habit, this is the easiest book to build it.
So next week, lookout for The Wisdom Of Atomic Habits in your inbox.
The first post will be mostly about the basics, the chapter titled — “The Fundamentals”. We will share our notes, learnings and insights from there.
Signing off for the week, here’s a question worth pondering—
What is your relationship with money? Is it a friend or foe to you, is it a tool to a greater end or is it a vanity metric?
Think!
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Hope you liked today’s post, if there are any improvements we can make, do let us know by replying to this.
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This was Wisdom Letter #74. In case you want to revisit any of the previous 73 letters, checkout our entire archive.
Love,
Aditi & Ayush