After spending over 20 years in financial services, I learned a great deal about the practices of the wealthy and the practices of most Canadians and Americans. There are many myths about achieving wealth and it may surprise you to learn only a few tactics separate the wealthy from those who struggle, living pay cheque to pay cheque.

The first two posts in this series featured our money beliefs and challenged conventional wisdom in accumulating net worth.  In this post I explore the power of our habits, specifically our spending habits.

Know Your Spending Habits

One day in my mid-twenties I had a startling realization: I could not pay the full balance of my credit card that month. In fact with a sinking feeling I realized it was going to take several months to pay it off. I was also on maternity leave at the time further impacting my repayment plan.

A special person in my life loaned me the money to pay it off with one caveat. I was to write down everything I spent my money on for 45 days. While I typically rebel at instructions that have a ring of authority, I had the good sense to defer in this case.

I kept a small notebook and wrote down everything and I was shocked. Never mind that I was working in financial services at the time. The fact that it was a revelation was of itself a big signal.

It was not the large purchases that contributed to my over-spending. It was the multiple purchases of under $50 and the almost as many $60-$75 purchases.
Within the year, I paid back the loan. Fortunately for me, I learned a valuable lesson in building wealth at an early age. It was one of the big contributors to acquiring my first million.

Today I utilize my credit card for virtually all purchases – great for tracking where I am spending my money. In any given month, the value of the purchases is 6 to 8 times what the outstanding debt was all those years ago. I am in a different financial situation, but I hold fast to the habit I established 25 years ago. I have paid my full balance every month. I now know exactly what I can afford and where I am spending. If my financial situation ever changes, I will be secure as I live within my means.  I have harnessed the power of spending. I know exactly what I can afford and I know where my money goes. By the way, so do all of my wealthy clients.

Looking for an easy way to track your spending? We no longer have to rely on pen and notepad. Mint.com offers a free service that tracks your spending and posts updates directly to your inbox.

More to follow…Join me for the next post in which you will learn how a reduction in fees can greatly increase your wealth.

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Tactics of the Wealthiest 10%

• Differing Beliefs What are your beliefs about money and wealth?
• Where did you learn them?
• Which beliefs are serving you and which are getting in your way?
• Net Worth, Not Income What is your net worth? (total investments + cash + savings – total debt = net worth)
• Are you living within your means? Or spending tomorrow’s money today?
• Know Your Spending Habits. Do you know where your money goes?

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