Behavioral personal finance is what’s going to make you a millionaire. It’s not street smarts nor is it any innate trait that’s going to get you there. It’s the behaviors you exhibit on a day to day basis that makes the difference by the end. That is good news.
Many people think the road to becoming a millionaire means that you need to have some innate skill that no one else has. That couldn’t be further from the truth. When I graduated college, I started at a lowly $52,500 salary. And I grew over the years to a $400,000 net worth at the age of 26.
My income right now is more than 3x+ what I started with, too. That wasn’t because I was smarter and had a better IQ than everyone else around me. That was because the behavior and tactics I applied to my personal finances were better than others’. I put in the necessary work,
Smart people can make a lot of money. But it’s harder for smart people to contain their ego enough to not spend as much money as they can and invest it in smartly the market. Smart people overestimate how well they can beat the market and end up underperforming the market as a result.
Behavioral personal finance is what’s going to get you rich and wealthy. The Marshmallow test is a very famous test that separates the patient from the impatient. Smart people generally want results quickly, fast, and now. A trait that works to their detriment when it comes to building wealth.
Delayed gratification wins against all.
What is Behavioral Personal Finance?
Behavioral personal finance is the behaviors that are related to personal finance, investing, and building wealth. It isn’t about what college degree you have or which family you were born to. It’s about the behaviors that are leading you to your current personal finance situation.
Many people mistake smarts as the reason for someone becoming obscenely wealthy. That is important but that’s not what puts them over the hump. Or many people think it’s a high income that’s going to make someone wealthy. That’s not true. If it were true, there wouldn’t be a millionaire janitor.
It’s your behavior that ultimately makes the difference in the end. How and what do you spend your money on? Are you the type of investor to panic sell at the first sign of trouble? The bear market of 2022 tested so many “long term” investors.
Many short term traders suddenly became long term traders when they were down 10%.
The personal finance behaviors are far more important than any amount of book smarts. I am in the above average when it comes to IQ and being smart. However, that wasn’t that valuable in me acquiring and gaining wealth. What made the difference was my willingness to live cheaply and invest the rest.
When I first graduated college, I lived in the SLUMS. I lived in an apartment paying only $640/month for rent. It was a lowly start but I was OK with it if it meant that sacrifice was what’s going to make me wealthy later down the road. Behavioral personal finance such as this made the difference.
What Behavioral Personal Finance Means
The first thing that behavioral personal finance means is are you SMASHING that social share button and sharing with your friends? Your friends might have a misguided lesson about wealth and may need a reminder to keep them moving forward. Sharing the article is a free thing to do!
So with that said, let’s go into exactly what kind of personal finance behaviors you can leverage to make you more money.
1) You Don’t Need to be Smart
The valedictorian of my high school is relatively successful. He graduated from pharmacy school and makes a good living of $140,000 per year. However, he barely started his journey in 2022. And on top of that, he has to pay off student loans. He’s not wealthier than me by any means.
He is an incredibly sharp person who knew how to get good grades and eventually a good job. However, there’s more than what meets the eye. While I have no doubt he will eventually become a millionaire, I am pretty sure he will be a millionaire in about 25 – 30 years.
Which is still good, but I graduated at a lower class rank than him and I am expecting to surpass that. I’m sure there are many others lower in the class rank list who will surpass him later down the road as well. Smart is helpful but it’s not necessary to build wealth. That is awesome news.
No need to be the smartest person in the room.
2) You Don’t Need to Start With Wealth
Many people think millionaires inherited their wealth. About 21% of millionaires inherited their wealth, sure. However, that means a whopping 79% did NOT inherit their wealth. Your family doesn’t have to be rich for you to be rich. All you have to do is exhibit the right behavioral personal finance to be wealthy.
Also, 21% of the general American population inherit their wealth, not just millionaires. Therefore, millionaires inherit wealth at the same rate that their non-millionaire counterparts inherit wealth. It’s no lie that it helps to start with familial help. But it’s not the whole picture or the whole story.
After I graduated college, I haven’t taken a dime from my parents. I wanted to make it on my own and I have a dying need to prove to myself that I can do it. I’m not going to say that the road wasn’t and isn’t easy. However, I am going to say that I think it’s doable.
I want to prove that becoming a millionaire is possible.
3) You Don’t Need a High Income
A high income does help but it’s not necessary. Otherwise, Ronald Read wouldn’t have become a multimillionaire on a janitor’s salary. It’s about the personal finance behaviors. Someone who invests $100/month on a $50k salary will be much better off than someone who invests $0/month on a $200k salary.
The high income always has a chance to come out ahead more than the lower income counterparts. However, that only holds true if they’re willing to exhibit the behavioral characteristics that are necessary for them to get there.
I’ve seen so many college graduates waste their money and potential by spending an obscene amount of money after starting their jobs.
Behavioral personal finance is what matters, not a high income. Richard Fuscone was a high powered Merrill Lynch executive who declared bankruptcy. That tells you everything you need to know about money. Some people just want to be smart with money and lose their money empire that they built.
4) You Don’t Need Natural Talent
Natural talent is overrated. Too many people think that the wealthy got there by either rigging the system, by having connections, and/or any other factors that they don’t control. That couldn’t be further from the truth. The vast majority of millionaires are self-made.
They got there by working their butt off for decades at a time. Anybody can do that but nobody, or very few, is willing to do that. Behavioral personal finance always win out in the end. Qualities like patience, less ego, doing a good job, showing up to work, and the like will always count.
It doesn’t hurt to be a pleasant person to work with. People don’t want to give opportunities to people who will be a pain to work with. The little things will matter. The soft skills matter in how many opportunities that you will have. No one wants to give a shot to the brilliant but arrogant person.
When you have people vouch for you, it is powerful.
5) You Don’t Need a Fancy Degree
There are students who graduate from Harvard and end up a nobody. How embarrassing is it to graduate from the most prestigious school in the entire country to have no job by the end? Extremely embarrassing. I have a degree from a state school.
While it is a strong education on my resume, it’s nothing compared to Ivy Leagues.
Behavioral personal finance always ultimately win in the end. There are so many of my friends who graduated from Ivy Leagues yet spend like there’s no tomorrow. They think, “we have no guarantee that tomorrow’s going to come, so why should I save?”. And end up spending as much money as they can.
Their spending habits don’t matter in the first year. I wouldn’t even say it matters in year five. The differences show up in the 10th year and beyond. Then we really see who was destined to become successful and who wasn’t. You want to be a winner in the long term. Not the short term.
A fancy and expensive degree is not the way to be rich.
6) You Don’t Need Outsized Luck
Luck plays a very important role. I was born in South Korea and not North Korea. If I was born in North Korea, there’s no chance that I would be writing to you on my blog with my story. I am so fortunate and blessed to have been born in South Korea to a loving household.
Not a perfect household but a loving household, nevertheless. The birth lottery definitely makes a difference. However, it’s what you do with the gift of life that makes the difference. It’s your life. Are you going to make your own luck or are you going to wait around for others to do things for you?
Behavioral personal finance trumps luck any day of the week. Your motivation and the willingness to get up every single day to better yourself will make the difference. It’s your effort, your life. How do you want to paint the picture for your life? It’s up to you and it’s your choices that matters.
Luck is when preparation meets opportunity, anyway.
7) You Just Need the Right Mindset
Behavioral personal finance means you have the right mindset in order to get ahead and move up in life. Successful people don’t have time nor the inclination to blame others for their failures. They don’t blame the opponent for beating them but they congratulate their opponent and learn from them.
The right mindset is what’s going to push you ahead. There’s a reason why most poor people believe the road to riches are family connections and inheritances. And there’s a reason why most rich people believe the road to riches are their own choices, hard work, and dedication.
Whether who is right or wrong, who cares? Which mindset do you want to associate with is what drives the choices you make. It’s your story that you’re making. No one else is going to make the choices for you and no one else is going to make the picture for you.
Depend on no one else but yourself. The world doesn’t owe anything to you. You owe it to yourself to be rich on your own.
Behavioral Personal Finance Gives Hope
The best thing about behavioral personal finance is that you don’t need an innate skill in order to get ahead in life. All you need are personal characteristics that are going to push you over the edge. This is what should give everyone hope. You don’t have to have all of the answers right off the bat.
All you have to do is be patient, invest as much money as you possibly can, and let time do the rest of the work for you. Very few people are really willing to save and invest the vast majority of their money. Very few people are willing to trust the process of the S&P 500 after it’s been down for 23% in 2022.
Fewer and fewer people are believing in the power of the markets, which is good news for you. That’s when you swoop in and take their shares away from them. A bear market is when stocks return to their rightful owners. The fake long term investors sell their shares to the genuine long term investors.
Is it painful to lose even an entire year’s worth of salary in just six months? Yes. However, it wasn’t painful when I gained a year’s worth of salary in just six months either. Investing balances out. The pain will always follow the gain and the gain will always follow the pain.
Behavioral personal finance ignores the noise of the market and focus on the long term returns of it. I have no doubt that the bull market will come back with a vengeance. Bear markets are temporary and bull markets are forever. I may be wrong but I am investing like I am right.
What Behavioral Personal Finance Means
- You don’t need to be smart
- You don’t need to start with wealth
- You don’t need a high income
- You don’t need natural talent
- You don’t need a fancy degree
- You don’t need outsized luck
- You just need the right mindset
Mindset truly is the secret sauce of personal finance. If you can learn to be content living with less you’re able to save and compound your way to financial freedom.
This is so true that only the few understand.
Great point!