Why Most People Fail at Becoming Wealthy
Here's a good bit of news if you're trying to create wealth.
You're probably in the right place.
Living in America, or most other economically advanced societies, confers enormous advantages. Some of us are born into wealth. Yet even those from modest backgrounds have access to great opportunity.
There's a paradox, here, however. The streets may run green with money, but relatively few people have figured out how to pick it up.
Why do we fail when we have so much in our favor?
We suffer from poor long-term planning
Wealthy people know the value of long-term planning. When their children are born, they open college savings accounts. Wait a minute, you might object. Wealthy people have the money to open accounts. They don't struggle to pay for a mortgage, food or medical care.
This objection misses the point, however. It's not the amount of money that counts. You can open a college savings account with a few dollars. It's the act that matters. It's a gesture of faith in your child's future. It's an optimistic move. It says that my child's education is vitally important, so I'm acting immediately.
If you're not wealthy, you don't always share such expectations or optimism. Long-term planning, however, is absolutely vital to wealth accumulation. To plan long term is to express confidence in your future.
And that's not something that all of us are comfortable with.
We don't expect to succeed
Everyone wants to become wealthy, successful and happy. Yet most of us lack the self-belief to make it happen. Without that inner core of confidence propelling us forward, we struggle to realize our goals.
A successful person expects to get a promotion. He expects his business to prosper. He's willing to take risks because he's not consumed with doubt. He doesn't shrink from opportunity because he feels inadequate.
That's the value of expectation. If you expect it to happen, creating wealth appears to be the natural course of things. If you feel like an impostor, then all of your choices will be colored by that negative point of view.
We don't stress financial literacy
Wealthy people are financially literate. Otherwise, they won't stay wealthy for long. Yet financial literacy among the general public is disastrously low. A recent national financial literacy survey showed that only 40-percent of Americans keep a budget. One in three households save no money at all. More than 60-percent do not review their credit reports annually. Twenty percent don't even know what's on a credit report.
Shocking? It shouldn't be. Schools have long been terribly deficient when it comes to teaching personal finance. If these habits weren't drilled into you by family, odds are good you'll learn the hard way.
We make poor decisions
Too often we make obvious blunders when trying to accumulate wealth. We fail to maximize our 401k contributions. We delay opening an IRA and minimize the magic of compounding. We don't carry enough insurance. We go into debt. We live above our means. We don't invest.
Any one of these mistakes can be crippling. These decisions are sometimes influenced by age.
A survey published earlier this year by a financial education firm showed that only 47-percent of Millennials have an emergency fund. That's compared with 71-percent for Baby Boomers. Likewise, only 40-percent of Millennials have adequate insurance. Retirement account savings are also considerably lower than any other age bracket.
Generation X doesn't come off well, either. Only 17-percent are on pace to meet their retirement replacement income goal. Generation X members are also the least likely to pay off credit cards. Furthermore, they are the most likely to ignore their allocation plan.
Baby Boomers have more money and experience. That doesn't always translate into better results. Boomers are the least likely to retire at 65. They are the least prepared for long-term care. And they are the most pessimistic. Only 26-percent believe their age means better opportunities.
We live in a great time to build wealth. Millions of people in the developing world are entering the middle class. New technology has made starting a business radically easier. The opportunities we have are almost limitless.
Yet human nature remains the same. That's the biggest roadblock we face.
Once we realize what's holding us back, however, we can move forward. So it's vitally important to:
- Engage in long-term planning
- Expect to be successful
- Stress financial literacy early and often
- Maximize your savings
- Invest often and wisely
- Avoid crippling mistakes
Do this, and your odds of achieving financial independence and happiness will increase exponentially.