“Stop thinking about what your money can buy. Start thinking about what your money can earn.”

If there’s one lesson I’ve learned from reading dozens of the best personal finance and investing books, it’s this:

Improving your finances is more about improving your habits than about increasing your income.

No matter how much money you make, without the right financial habits, you can still end up broke.

But with the right money habits, you can fundamentally change your life.

Build the right financial habits now, and you’ll receive dividends for decades.

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As Warren Buffett once said, “The chains of habit are too light to be felt until they are too heavy to be broken.”

They Put Their Money To Work

When you’d give a random group of people $10,000 each, 95% of them would only think about what to buy with it.

But 5% of people would think about how to put the $10,000 to work (aka, invest it) so it will help them reach financial freedom faster.

Where most people have a consumer mindset, only few have an investor mindset.

“It’s not hard. Stop thinking about what your money can buy. Start thinking about what your money can earn.”

— J.L. Collins (author of The Simple Path To Wealth)

Financially smart people use their money to make more money.

Rather than wasting their hard-earned income on stuff, they put it to work by investing it in income-producing assets.

People with an investor mindset use their money as a tool to reach freedom and independence.

And that’s the ‘secret’ of the wealthy:

They don’t just work for money, they let their money work for them.

By investing your money in stocks, index funds, or real estate, you’ll make passive income in the form of dividends, rental income, or capital gains.

One day, the passive income generated from your assets could replace the active income from your job or business.

As legendary investor Peter Lynch said, “Money is a great friend, once you send it off to work. It puts extra cash in your pocket without you having to lift a finger.”

All in all, put your money to work by purchasing financial assets rather than purchasing fancy stuff.

They Resist Lifestyle Creep

The unfortunate truth is that most people spend everything they make. Whatever money comes in today, goes out tomorrow.

Of course, many expenses are unavoidable:

Mortgage/rent
Insurance
Raising kids
Utilities
Groceries
But many expenses are unnecessary.

Whether it’s fancy restaurants, expensive clothing, a bigger house, a faster car, or a slightly better smartphone.

These expenses are a form of ‘lifestyle creep’.

Lifestyle creep means when your income increases, your expenses increase just as much to upgrade the quality of your life.

Although there’s nothing wrong with rewarding yourself for your hard work, don’t let lifestyle creep slip out of control.

Those who suffer from lifestyle creep go through life with a consumer mindset rather than an investor mindset.

Instead of thinking about how their money can be used to achieve freedom, they think about everything fancy their money can buy.

But as J.L. Collins said in The Simple Path to Wealth:

“Money can buy many things, none of which is more important than your financial independence.”

When you make more money, don’t just buy more fancy stuff, but buy income-producing assets that help you reach financial freedom.

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They Save, Save, Save

If you want to build wealth, you’ll have to develop the habit of saving money on a consistent basis.

As Peter Lynch said in Learn To Earn, “Whether it’s $10 a month, $100 a month, or $500 a month, save whatever amount you can afford, on a regular basis.”

Some people in the personal finance space say you shouldn’t save because your money loses purchasing power due to inflation.

Although that’s technically true, I think it misses an important point:

Learning how to save is the most fundamental step in improving your finances.

Without saving, you can’t build an emergency fund to protect you against financial disaster.

Without saving, you don’t have any capital to invest in income-producing assets.

Without saving, you don’t have the freedom and flexibility to make big life changes.

Start saving as much as you can — it’s the foundation of financial health.

They Continuously Upgrade Their Financial IQ

Building wealth isn’t necessarily about making a lot of money — it’s about mastering your money.

As Robert Kiyosaki said in Rich Dad Poor Dad:

“It’s not about how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”

That’s why financial literacy — understanding how to manage your money — is far more important than how much money you make.

Most people who make a lot of money without having learned the financial foundations tend to quickly spend (or lose) their money.

Statistics show 70% of lottery winners end up broke and 33% go on to declare bankruptcy within 7 years after winning the lottery.

Read also: 10 must do’s if you are in financial trouble

And many professional athletes and famous entertainers who made millions in their careers ended up bankrupt too:

Mike Tyson made more than $300m in his career but filed for bankruptcy in 2004
Johnny Depp earned over $600m in his career but almost had to file for bankruptcy
Nicolas Cage earned over $150m in his career but nearly lost it all in 2009
These examples show that even if you’ve made hundreds of millions, you can still lose it all when you lack the financial skills to save, invest, and manage your money.

“Money without financial intelligence is money soon gone,” said Robert Kiyosaki. That’s why, no matter which income level you’re at, it’s essential to learn the foundations of financial literacy:

How taxes work
How to invest in stocks
How to invest in real estate
How to make a plan to pay off debt
How to make your money work for you
How to make a monthly expense budget
How to differentiate between assets and liabilities
When you learn these money-management skills, you’ll reap the benefits for the rest of your life.

Remember, it’s not necessarily those who make a lot of money who get wealthy; it’s those who manage their money the best who get wealthy.

It’s those who’ve developed their financial intelligence.

CONTRIBUTED BY Jari Roomer

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