If you haven’t read it, chances are you’ve at least heard of Stephen Covey’s The 7 Habits of Highly Effective People. First published back in 1989, the famous book has sold more than 40 million copies to date, has been translated into numerous languages, and was named the Most Influential Book of the Twentieth Century by Chief Executive magazine. I’ve read it myself and often recommend it to people early in their careers.
I don’t know what it is, but seven seems to be a magic number. Through our 2023 Planning & Progress Study at Northwestern Mutual, we set out to uncover financial habits that wealthy Americans use to build and preserve wealth. Specifically, we surveyed Americans with $1 million or more in investable assets to understand the financial habits they employ. And you guessed it—the data revealed seven of them.
While you likely already have ideas about the financial habits required to build and preserve wealth, there is a good chance you can use data from our study to help form new habits as well. I hope these help you advance your own financial goals.
Habit #1: Focus on the Big Picture
Despite the trees, most wealthy Americans see the forest clearly, with 84 percent saying their financial plans are designed to mitigate long-term risks. That’s compared to just 49 percent of the general population.
This is important because as Americans continue living longer, the financial challenges likely to occur over a long life increase substantially. In the finance world we call this risk “longevity risk.” Many factors contribute to longevity risk, including market volatility, inflation, higher taxes and rising healthcare costs. A well-thought-out financial plan can help you anticipate what’s ahead and position you for long-term financial success to manage that longevity risk.
Habit #2: Act but Don’t Overreact
Our survey respondents are not complacent when it comes to their finances. In fact, 77 percent describe themselves as disciplined or highly disciplined planners. To put it another way, they have financial goals and a road map to help achieve them.
And this is exactly what a Northwestern Mutual financial advisor can help you do. Typically, implementing your plan will begin with a current-state assessment and then move on to setting goals and identifying the requisite steps to achieve them. Once in place, by following your plan and collaborating with your advisor at regular intervals and during times of change, you’ll be better positioned to act in support of your long-term financial goals instead of making decisions on the fly based on limited information and perspective.
Habit #3: Be Open to Improvement
About half of wealthy Americans see opportunity for improvement in their own financial plans.
Financial plans are meant to be living documents. As you continue your financial journey, your circumstances and goals will change. When they do, it’s important to evolve your plan by educating yourself on and adopting new financial strategies to meet your needs.
Habit #4: Don’t Take Chances With Your Financial Security
While survey respondents do take calculated investment and business risks to help grow their wealth over time, they don’t take chances when it comes to the financial security of their families. In fact, in our Planning & Progress Study we found that 91 percent of millionaires have a financial plan that incorporates the possibility of an unplanned financial or health emergency.
This data point really highlights the importance of having a backup plan. Typically, you’ll want that backup plan to have two key components: 1) an emergency fund containing about six months’ living expenses and 2) adequate long-term disability insurance coverage to help you protect your most valuable asset: your ability to earn an income.
Habit #5: Stay Optimistic About What You Can’t Control
Whether it’s the upcoming presidential election, inflation, monetary policy, the fate of Social Security or something else entirely, the wealthy stay optimistic about what they can’t control. The data implies that’s because they have a financial plan designed for all seasons. In fact, our study shows that 84 percent of American millionaires have a financial plan.
The reality is none of us can control the future. And that’s what makes a good financial plan so critical to building and preserving wealth. If done right, your financial plan helps anticipate key risks and leverages proven strategies to help mitigate their negative impact on your long-term prosperity.
Habit #6: Stay Connected With Others
Survey respondents stay connected, with 87 percent saying they feel strong or very strong about their friendships.
And while calling this a financial habit may seem like a stretch at first, scientific studies like the Harvard Study of Adult Development have time and again demonstrated a strong connection between warm relationships, happiness, health and longevity. My advice? Be attentive to your connections with others, even those that may seem inconsequential. Warm connections are the key to living a good life, ultimately helping you live well longer.
Habit #7: Seek Professional Financial Advice
The wealthy place a high value on professional financial advice. And they aren’t likely to rely on Tik Tok influencers or financial gurus, either. Seventy percent work with a financial advisor, and far and away they say this person is their most trusted source of financial information—more than four times any other source.
Do you think it’s a coincidence that most American millionaires use a financial advisor? I sure don’t. With the guidance of an experienced financial advisor, you have easy access to market insights, financial products and an informed perspective. Together, these qualities can enable you to make sound decisions that support building and preserving long-term wealth.
