Wealth is an elusive goal for many people. Everybody wants it, but for many, it’s impossible to reach. Every time they get a bit ahead, something always seems to come up, forcing them to live paycheck-to-paycheck.
What’s happening? Why can’t you gather enough wealth to know where next month’s rent payment is coming from?
1. You spend more than you earn. This is the mystical and magical Golden Rule of personal finance. Every system, every plan, every gimmick boils down to this. If you spend more than you earn, you are digging a hole that keeps getting harder to get out of. Don’t do it. The amount you earn needs to be bigger than the amount you spend.
2. You aren’t investing. If you invest $200 per month at 5% in your 20s, then stop and let interest do the rest,you’ll have as much after 30 years than if you started at 30 and continues to invest every month. Compound interest is very much your friend. The earlier you can start investing, the better.
3. You are investing in the wrong things. Some things are bad investments. Uncle Bob’s annual get-rich-quick scheme is going to be a bad idea every year. That’s not an investment, it’s pity. Another example is gold. Over the last year or so, that seems like a stupid thing to say, but it’s true long-term. Gold isn’t an investment, it’s an inflation hedge. Generally speaking, a given amount of gold represents the same amount of purchasing power all through time. To put it in simpler terms: 100 years ago, an ounce of gold could get you a nice suit and a good dinner. Today, that’s still true.
4. You aren’t saving. If you are spending less than you earn, what are you doing with the excess? Hopefully, you’re investing it, but keeping a stock of cash is a zero-risk savings account is a smart plan. It’s been said that when you don’t have an emergency fund, everything is an emergency. Have a cash reserve gives you the ability to not only deal with all of life’s little kicks to the crotch, but also lets you take advantage of the opportunities that may cross your path. A coworker needs to unload that big screen TV for 10% of what she bought it for? On it. Find a great deal on airfare to your dream destination? Bon voyage. Savings means security and opportunity.
5. You keep your debt. Debt is the biggest drain on wealth. Every penny you have to spend to service your debt(interest) is a penny you can’t save, invest, or otherwise enjoy. Carrying a balance is a fast way to immediately raise the price of everything you purchase, by 5%, 10%, or more. Debt and interest will hold you back financially like nothing else.
When you’ve been able to acquire a bit of wealth, you are better able to weather life’s bumps, dips, and face-flung poo. There’s nothing quite like the feeling of knowing that, no matter what happens, you aren’t going to struggle financially.
I just think about all that I could be doing if I didn’t have debt to contend with and can’t help but agree with your post 100%. I am starting to focus on number 1 and number 5 in order to start making real progress.
I’m doing a pretty good job of living within my means, with the exception of my son’s vision therapy. I can’t wait until the debt is all paid off.
Excellent tips! Becoming wealthy isn’t unattainable, it just means having some sort of plan and saving your money. Now, if only I knew this when I was in my 20’s. 😉
There’s a huge list of things I wish I knew when I was in my 20s. 🙂
Number 1 is so hard for people. It’t not that people intend to spend more than they earn, it is just that they get tempted in our consumerism society.
I feel for people who are so badly in debt that they feel there is no hope because this is not true.
I’ve got a couple of close friends who feel absolutely hopeless. Unfortunately, they aren’t trying to change any habits.
Great points. I personally am trying to get rid of every bit of debt we have, so the mortgage is next on my hit list…
I’m still chasing down my kid’s vision therapy bill. It’ll be gone this month, for sure. After that, I’ve got 1 more credit card, and my mortgage. By my math, I’ve got 2 years of debt left.
I’m starting to hate my mortgage. It’s such an albatross. We are paying extra every month, but it’s not making much of a dent yet… 🙁
I’m lucky there. I’m on the final stretch of my mortgage. I think it’s scheduled to be paid off in 4 years.
This is a very interesting article. I think this one of the common questions people have in mind when it comes to their financial status. These reasons are very much effective in making me realize why wealth is not growing. Thank you very much for sharing this one!