Money Habits That Build Wealth: Tier List
We all develop different habits around our money, often without really thinking about whether they’re helping us reach our goals.
But how helpful are they really?
In this episode of Money illuminated, we put 10 everyday money habits to the test, ranking each one from S tier to F tier to explore how they might affect your ability to build wealth over the long term.
Some might be exactly where you expect. Others might surprise you.
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Catch the full episode
Watch or listen to the full conversation behind the tier list, including the thinking behind each ranking.
The habits that come out on top
S Tier
If you’re wondering why S comes before A, the ranking has its origins in Japanese culture, where S tier is used to represent something truly elite, or the very best. So, for today, A tier has officially been demoted.
When it comes to our tier list, these are the habits that earn our top ranking.
Maximising your employer pension contributions
If your employer will increase the amount they pay into your pension when you increase your own contribution, making the most of the employer contribution available to you could be valuable.
Increasing those contributions can mean more going into your pension from both you and your employer, with the potential benefit of tax relief on your contributions and compounding over time.
Of course, increasing your own contributions needs to remain affordable alongside your other financial commitments.
Having a financial plan
A financial plan can give your money purpose, create structure around your goals and help guide the decisions you make along the way.
But having a plan is only part of it. Your goals, circumstances and lifestyle will change over time, so regularly reviewing and adapting your plan is just as important as creating it in the first place.
Investing in global equities
When investing for the long term, global equities can provide broad diversification across companies around the world.
There will inevitably be periods when markets rise and fall, which is why taking a long-term view and sticking to your plan is so important.
That doesn’t mean everyone should invest entirely in global equities. Your investment mix should reflect your individual circumstances, goals and wider financial plan.
10 money habits in 4 minutes
Want the tier list without the full episode? We’ve condensed the conversation into a four-minute recap, covering the 10 money habits and where they landed in our rankings.
A strong financial habit
A Tier
A may have lost the top spot, but this habit comes pretty close.
Automating your savings
Waiting until the end of the month to save whatever is left can be difficult. Often, that money has already been spent elsewhere.
Automating your savings allows you to effectively pay yourself first, putting money towards your financial goals before you have the opportunity to spend it elsewhere.
Where that money ultimately goes still matters. For example, money needed in the short term may need to be treated differently from money intended for longer-term goals.
Useful, but action matters
B Tier
Having a budget
Understanding how much money is coming in, what’s going out and where you might be able to make changes can be incredibly useful.
But a budget gives you information. It doesn’t build wealth on its own. It’s what you do with that information next that can make the difference.
A valuable habit, but one that needs action behind it.
There’s more to consider
C Tier
Staying in your workplace pension’s default fund
If you’ve never looked at where your workplace pension is invested, you’re probably not alone.
Default pension funds have a purpose, but that doesn’t necessarily mean they’ll remain the right fit throughout your working life. As your circumstances change and retirement gets closer, it can be useful to understand how your pension is invested and whether it still supports your goals.
It depends on the circumstances
D Tier
Putting your disposable income into cash
Cash can play an important role in your wider financial plan, particularly when it comes to building an emergency fund or having money available when you need it.
But automatically putting all of your disposable income into cash may not be the best approach for building wealth over the long term. Inflation can reduce the value of cash in real terms over time.
It’s about understanding the role cash plays within your wider financial plan.
One to reconsider
E Tier
Checking your investments every day
With investment apps on our phones, it’s easier than ever to see what our money is doing from one day to the next.
The problem is that constantly watching those movements can shift the focus towards short-term ups and downs rather than the longer-term plan. When it’s your own money, it can also be difficult not to react emotionally.
Stepping back from the day-to-day movements can help keep your attention on the bigger picture.
Habits that could work against your long-term goals
F Tier
At the bottom of our tier list are two habits that could make it harder to stay focused on your investment plan.
Investing in one company stock
Putting a significant proportion of your wealth into one company creates concentration risk. If that company performs badly, there’s no guarantee it will recover, even over the longer term.
That’s different from investing a small amount of disposable money for interest or enjoyment, where losing it wouldn’t affect your wider financial plans.
Relying heavily on individual company stocks, however, can introduce significant risk when you’re trying to build wealth.
Listening and reacting to market noise
Financial news is everywhere, and simply listening to it isn’t necessarily the issue. Reacting to it can be.
Changing your investments in response to short-term headlines or market movements can take your focus away from your longer-term plan.
That doesn’t mean your investment strategy should never change, but those changes should be considered rather than driven by short-term market noise.
So, where do your money habits rank?
Building wealth isn’t about changing everything overnight. It’s about developing habits that support your goals and making considered financial decisions along the way.
And remember, there is no universal tier list for personal finance. A habit that makes sense for one person may not be appropriate for another.
Want to understand how your finances fit into the bigger picture? Get in touch to start a conversation about your financial goals.
