I truly believe with enough time, effort and smart decisions, anyone in this country can become a millionaire. Thousands of not-born-rich Americans have achieved it by scrimping and saving, and their ranks are increasing every day. On the other hand, a significantly larger number of citizens can’t even dream about achieving financial independence, let alone becoming millionaires. They would be happy to just escape the living paycheck-to-paycheck hamster wheel, barely scraping by, and being possibly one emergency away from financial ruin.
I’m going to share with you the nine most common reasons preventing someone from accumulating a seven- or even eight-figure nest egg. If you recognize yourself here, achieving financial independence is probably going mean making some changes. (For more from this author, see: Retirement: Saving First Million Is the Hardest.)
REASON #1 Falling for the Biggest Stock Market Risk – Not Investing
Hear me now: No investments means no millionaire. “Cash is king” is an old saying, but cash doesn’t earn income or interest. After inflation, cash under your mattress loses value every day. To achieve financial independence, most people will need the help of compounding interest and the long-term growth of investments.
REASON #2 Not Saving Enough
Whether you are afraid of the stock market or think you have the perfect investment portfolio, if you don’t save enough you will still never accumulate a million dollars or more. It’s not what you make but what you keep. A penny saved is worth nearly two pennies earned.
The best advice I can give you is to stop procrastinating and start saving now. Even if you have to start small, you will be better off than if you never started at all. You may be surprised at how good you feel knowing you are on a path to reaching your financial goals. Strive to save 10-20% of your income. (For related reading, see: Why Saving Money Is Important.)
REASON #3 Spending More Than You Make
You have lots of company on this one. Many people finance their own version of the American Dream by straining their budget to a breaking point. Living paycheck to paycheck (or worse, falling behind) has become the norm. The best-case scenario here (which isn’t very good) is that you aren’t accumulating wealth; the worst case is that you are building an insurmountable pile of debt.
REASON #4 Throwing Money Away on Debt Payments
This one goes hand in hand with living beyond your means. I always think of the Debt Free Guys, John and Dave, when talking about credit card debt. They are financial blogger friends of mine who were drowning in a whopping $51,000 of credit card debt. That translated to over $10,000 in interest per year just to stay even. (What would you do with an extra $10,000 per year?) They finally managed to pay it off. It wasn’t easy but it was necessary.
REASON #5 Ignoring the Little Things That Really Add up
Every day we are barraged by infinite ways to waste money, often wearing the sinister disguise of "convenience." You pick up some magazine at the grocery checkout line and toss it into your cart even though you could probably get a year’s subscription for the same price. Or you check in 20 bags when flying when you could get away with a carry-on. The list goes on and on.
REASON #6 Making Unhealthy Choices
I actually mean health choices here. According to a U.S. Trust study, 98% of millionaires consider good health to be their most important personal asset. If you aren’t healthy, no amount of wealth or privilege really matters all that much.
Spend what you need to make sure you get all the necessary screening and physicals recommended by your health care professionals. Exercise and eat healthy too. To be sure, real food costs more than junk food, but this is the one area where I advocate spending what you need to.
REASON #7 Not Having a Spending Plan
The word budget makes many people cringe. I hate it too, which is why I prefer to operate with a spending plan. People who are good with money do not treat their finances as some random event, they use them and work with them on purpose and with purpose. Money doesn’t just take care of itself. Yet, so many of us are still surprised when a big bill comes in. A spending plan is about managing expectations so there are no horrible surprises and you can save up for the pleasures in life.
REASON #8 Paying Too Much in Taxes
Don’t forget it’s not what you make but what you keep. Minimizing taxes is a great way to help keep more of the money you are making. Talk with your fiduciary financial planner to see what other tax-saving strategies might be appropriate to help you keep more of your hard earned money. (For related reading, see: Your Income Tax: 3 Little-Known Ways to Reduce It.)
REASON #9 Lacking Purpose and Passion in Life
Having a passion will make it easier to get up every morning and be the best that you can be. I’ve observed that many of my most successful and happiest clients love what they do. That extra spring in their step is noticeable. Many people choose a job based on just the salary rather than the overall quality of life it will provide. Follow your passions and dreams and the money should follow. This may seem rather naïve, but time and time again I’ve seen how true it is.
So there you have it. You can position yourself for prosperity by sabotaging financial self-sabotage. And you don’t have to go it alone. Work with a fiduciary financial planner to get your financial house in order and maybe, just maybe, you too will make it to millionaire status.
(For more from this author, see: Planning Financially for Today and Tomorrow.)
The opinions voiced in this article are for general information only. Full disclosure www.financialplannerla.com