You make a decent living, have a nice house and don’t have any debt. But yet, you still haven’t achieved the true financial freedom that comes with ample retirement savings, capital to support the philanthropic causes that are important to you, and wealth to pass on to your children and grandchildren. We asked financial experts to tell us the bad habits that prevent people from getting rich. Read on to learn how to start thinking and acting like the wealthy person you want to become.
1. You think rich people are inherently bad.
Most people say they want to be rich, but many of us still have a lot of negative internal dialogue about wealth. Jocelyn Wright, a financial planner and professor at The American College of Financial Services, says that deep down, a lot of people don’t believe you can be wealthy and do good at the same time. “Have you ever wondered why people who win large amounts of money in the lottery eventually wind up losing it all?” Wright says. “The author of ‘The Millionaire Mind’ says that lottery winners lose money and return to their original state, which is to the amount that they can handle. Ask yourself — how much money/wealth can you handle?” Banish negative money talk to achieve financial freedom (and by all means, use some of that well-earned money to make the world a better place!).
2. Your friends don’t make enough money.
Wright says that people tend to earn within 20 percent of the average income of their closest friends. “You’ve heard the saying, ‘If you are the most successful person in your group, you need to find a new group,’” Wright says. “Well, iron sharpens iron.” Don’t ditch true friends because of their tax bracket, but consider buddying up to financially savvy folks who will inspire you to reach the next level.
3. Your motto is YOLO.
You only live once, it’s true. But, if you’re always living only for today, your financial future is bleak. Live life to the fullest — but do it well within your means. “When you get a raise or bonus, don’t increase your lifestyle,” Wright says. “Instead, aim to create a lifestyle where you need less money to live on. That way, we can direct more to creating long-term wealth.”
4. You work too hard.
It used to be that if you worked hard enough, you could achieve financial success. But, says MJ DeMarco, author of “The Millionaire Fastlane,” it’s become much more difficult to get ahead while you’re working for someone else. “Today’s ‘new normal’ within the job economy is globalization, wage stagnation, poor job growth and corporate inversions,” he says. “This is the wrong system. The right system isn’t one that is attached to a job, a corporation, and a limited ceiling paycheck, but striking out on your own in an entrepreneurial venture that possesses scalable leverage.”
5. You procrastinate.
Even many high-income earners wait too long to start a serious savings plan, according to Kim Jenson, managing director, Wealth Management, UBS Financial Services Inc., Chicago Tower Complex. “An early start, with smart money habits, can give you a longer timeline for generating savings, interest and profits that can be reinvested and used toward achieving long-term goals like retirement and funding college education,” Jenson says. “Get in the habit of paying yourself first by routinely setting aside funds from every pay period.”
6. You live like you’re already rich.
Jenson says “new earners” tend to outspend their income because they “are betting on a certain future of continued earnings growth.” It’s great to have a positive attitude — but don’t let optimism blind you when it comes to money. “Buying the Louis Vuitton handbag or luxury car is tempting, but focus first on building wealth and contributing to a retirement plan,” Jenson advises.
7. You don’t track your spending.
Brian Lorber, a vice president with Mesirow Wealth Advisors, says affluent people consistently save money (yep, it really is that simple). But, in order to get serious about saving, you first need a clear understanding of how you spend money. “You might just discover that you aren’t really spending your money on the things that make you happy or that you find fulfilling,” Lorber says. “Prioritize your spending based on your priorities in life and then cut back in areas that make sense for your family.”
8. You underestimate the power of compounding.
“Earning on your earnings is the surest path to wealth,” Lorber says. That’s why it’s important to start saving early, to maximize your retirement account contributions and to defer taxes — so your earnings can compound more quickly.
9. You try to time the market.
“Successful investors build wealth because they have a long-term view and are patient,” says Kathy Roeser, a managing director with Morgan Stanley Wealth Management. “They don’t sell at the bottom of the market or a correction.” It’s human nature to get nervous when the markets are volatile, but slow and steady wins the race when it comes to investing to build wealth.
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