The wealthy accumulate wealth by being frugal
Frugality – a commitment to saving, spending less, and sticking to a budget – is a key factor in accumulating wealth, according to DataPoints’ founder, Dr. Sarah Stanley Fallaw. Dr. Fallaw is also the co-authored “The Next Millionaire Next Door: Enduring Strategies for Building Wealth“.
In an University of Georgia’s financial planning performance lab research paper examining the topic of “what does it take to build wealth over time”, the key findings were that those who were successful at accumulating wealth frequently exhibited the following behaviors:
- Spending less than they earned
- Having a long-term outlook on their financial future
- Maintaining sound financial records
- Keeping up with financial markets
- Saving regardless of income level
Essentially, her research shows that anyone can accumulate wealth if they know the right steps to take. And, if individuals possess a certain set of characteristics, they may be more likely to become wealthy, according to Dr. Fallaw, who is also director of research for the Affluent Market Institute.
In her research, she found that six behaviours, which she called “wealth factors,” are related to net worth potential, regardless of age or income:
- Frugality, or a commitment to saving, spending less, and sticking to a budget
- Confidence in financial management, investing, and household leadership
- Responsibility, which involves accepting your role in financial outcomes and believing that luck plays little role
- Planning, or setting goals for your financial future
- Focus on seeing tasks through to their completion without being distracted
- Social indifference, or not succumbing to social pressure to buy the latest thing
In order to accumulate wealth, it is imperative for investors to understand that their underlying financial behavior and habits matter significantly. DataPoints research supports the notion that, “…individuals who successfully accumulate wealth often engage in basic and identifiable productive financial management behaviors.” And, they are often “socially indifferent” to the latest “must haves” and they resist the “lifestyle creep,” which is the tendency to spend more whenever they earn more.
To properly build wealth, financial experts recommend saving 20% of your income and living off the remaining 80%. Many wealthy individuals, who religiously follow this principle, espoused the freedom that comes with spending and living below their means.
Reference
- Grable, J. E., Kruger, M., & Fallaw, S. S. (2017). An Assessment of Wealth Accumulation Tasks and Behaviors. Journal of Financial Service Professionals, 71(1), 55-70.
- https://www.datapoints.com/2017/04/06/tasks-of-wealth-accumulators/
- https://apple.news/A4YIQ2ahsSKqzUG3rh1PmTQ