Here’s a little scenario for you: You pull up a snapshot of your personal net worth on your handy Mint dashboard. From the trends section, you are painfully aware that your net worth hasn’t really grown in a couple years. Yep, that line chart tracking your net worth is pretty much horizontal, perhaps it even dips down a little bit. What gives?
Well don’t fret, because you’re in the same boat as most Americans. Heck, even I, the self-professed master of all things “Gen Wise” when it comes to wealth (yeah, right…), struggle a little from time to time in my own personal journey. As it turns out, you’re making some pretty big mistakes…about 5 of them to be exact. But the good news is, I’m here to shine a bright light on them so that we can correct these issues and chart our course to financial greatness!
1. You’d rather SEEM wealthy than actually BE wealthy
Remember last week when you saw that dude in his designer shades and fake tan driving a bright red Ferrari down the street? Man, that guy was awesome! If he’s driving a car like that, he MUST have tons of extra dough to throw around. Think of all the chicks he must get!
…But then you come to your senses and realize he’s just another poser….absolutely the worst kind. Every big city is full of these guys…I like to call them “LA Rich”.
The guy might drive fancy car, but unfortunately for him, he probably has no net worth on which to hang his hat. Why? Well simply, impressing others (those dumb enough to be impressed) is more important than growing his personal wealth. He’ll never be wealthy.
Don’t be this guy.
Truth be told, if you’re not born rich, you simply can’t have your cake and eat it too. If you want to be wealthy, you absolutely cannot buy the things that make you seem wealthy. You must be willing to lead a conservative, humble, and disciplined lifestyle of spending less than you make, while investing the difference for the long haul. Seriously, true wealth isn’t flashy.
Instead of taking pleasure in having a nicer purse, car, shoes, TV, or house than your friends and/or peers, revel in the fact that your assets and wealth are growing much faster than theirs!
2. You fear what you don’t understand
The financial world seems like a daunting place, with lots of investment options, savings plans, and bank offerings, and it just freaks you out. You feel paralyzed and have no idea what steps to take. You’re not alone.
But instead of running from your fears, face them by getting educated on the ways of wealth building and personal finance. You’ve already come to the right place, and I have some great resources here (including my free eBook on 15 Ways to Achieve Financial Freedom if when you sign up for Gen Wise Wealth).
Talk to your friends, your parents, your peers, or your co-workers to collect vital information. Check out my Blogroll and Great Reads sections for some wonderful resources to expand your financial horizons.
There’s no one holding you back from success in your personal wealth building journey but yourself.
3. You prefer instant gratification
If there’s one thing that absolutely destroys the ability to generate wealth, it’s instant gratification. Life is filled with so much temptation and so much peer pressure to have everything we want right now. We’ve been coddled from a young age into believing that we are somehow deserving of the absolute best today, and we’ve convinced ourselves that the material things we want today will make us happy.
Unfortunately, today’s self-gratified purchases and indulgences only leave us feeling empty in their inevitably fleeting reality. We experience a viciously addictive, drug-like high in the moment, but are left unsatisfied, bored, and altogether empty-pocketed once that high wears off. Are we really any better off having satisfied our desire to buy that perennial new purse or pair of shoes? Probably not.
One thing’s for sure, however: If money is frivolously spent rather than saved and invested, the opportunity for its long term growth is gone forever. We’ve succeeded in making ourselves permanently poorer.
Instead, have a little patience. Challenge your day to day purchases…especially the frivolous ones. Your future wealthy self thanks you for staying home from the mall today.
4. You’ll get around to it later
It’s so easy to put things off: I’ll sign up for my employer’s 401k plan tomorrow. I’ll start saving money once I get my raise next year. I’ll call Vanguard to set up my automatic investment plan next week when I get some more free time.
Guess what, you need to quit stalling and just get to it already! Every day wasted is another day you could’ve been saving, investing, and growing your wealth. Seriously, don’t make me get all technical on you…I’ll bust out my Texas Instruments BA II financial calculator if I have to in order to show you what you’re losing out on by not acting! Compound interest is a serious matter that should NOT be taken lightly! Waiting to invest can cost you big dollars in the future.
Fine, let’s look at a quick example to prove my point here. If you wait until you’re 35 years old to start saving and investing your money, you’d have to save $671 per month to have $1 million by the time you’re 65 (assuming an 8% rate of return). On the other hand, if you started saving and investing 10 years earlier at 25, you’d only have to put aside $286 per month to reach that same $1 million by 65. The time is now…so strike while the iron is hot!
5. You don’t make it automatic
The easiest way to be a millionaire is to automate….seriously. When we rely on ourselves to make cash transfers to our savings account or purchases of a mutual fund or stock, we tend to forget or allow other (frivolous) spending to take priority.
Instead, take practical steps now to ensure that you are automatically saving and investing regularly. How? Well for starters, if your employer offers a 401k or equivalent plan, make sure you are participating so that regular contributions from your paycheck are invested in selected mutual funds. Also, please contribute at least enough to make use of your company’s matching program, if applicable. That’s like…um, free money!
Make sure you are paying yourself first by setting up a regular transfer from your checking account to a savings or investment account (for more details, see my eBook on 15 Ways to Achieve Financial Freedom). By making these transfers automatic, you force yourself to stay lean with your spending habits. Regularly investing automatically also provides the vicarious benefit of dollar cost averaging, meaning investing at regular intervals regardless of how the market fluctuates. Dollar cost averaging automatically greatly reduces the likelihood that emotion will enter your investment decisions.
What wealth destroying habits are you guilty of committing?
Thanks for the read,