Becoming wealthy is not easy. It takes hard work, a sound strategy, and continued perseverance. Moreover, becoming wealthy means taking action versus looking for good things to happen to you or looking elsewhere for opportunity. While there are a number of reasons or challenges to individuals becoming wealthy, in this post, I’m going to walk through five reasons that are fairly common in explaining why people fail to become wealthy.
Photo by Wm Jas via Flickr
If you have comments or would like to add reasons you think might be just as appropriate, I encourage you to add your comment below.
Us Americans are very much enticed by the latest and greatest. Further weakening us is the mysterious yet powerful force that pushes us to “keep up with the Joneses.” We judge people by their appearances far too often including the financial health of a person. The reality is that a rich person might drive a crappy car while your neighbor with the brand new BMW might be broke.
We need to focus much more on investing our money into assets instead of pouring it into shiny consumer products. We need to chase long term returns and a portfolio of assets versus a short-term emotional highs by showing off our latest gadgets, cars, boats, clothes, watches, house, or you name it. We need to chase financial freedom, not fancy things.
Unfortunately, our society is obsessed with debt. The biggest reason debt is destructive is that it allows you to buy more than you can afford. Debt allows you to break free of the restriction of living within your means. Never mind the interest payments which kills your pursuit of wealth. Just the simple act of buying more stuff than you should is a major reason people don’t become wealthy.
For the record, this concept applies to a home as well. For far too long, mortgage debt has been labeled “good debt” and buying a huge house that you can’t afford has been labeled a “smart investment.” Housing is an expense and debt is debt.
Quick question: how much of your money is going into depreciating assets and how much of it is going into appreciating assets? This is an important question to ask yourself. Sure it’s fun to drive a nice car, but far too many of us put more money than we should into depreciating assets such as a car.
A simple rule of personal finance is to allocate as much money as you can into assets that will earn a return or grow in value and as little money as possible into things that will lose value. The more extreme you take this concept, the more wealthy you’re likely to become.
Far too many Americans are comfortable earning a paycheck for the rest of their life or being an employee for the rest of their life. It’s very tough to become significantly wealthy by earning a paycheck. Yes, there are executives of Fortune 500 companies that make big time money, but we’re talking about a very, very small minority of the paycheck earning population (the exception to the rule).
Americans need to become more entrepreneurial focused. Financial freedom is often found in the realm of entrepreneurship, but succeeding in this realm has some pre-requisites. These pre-requisites are often talent, hard work, and capital (savings). If you’re not ready to start your own business, that is completely normal, but make sure you’re doing things now to get you to that level of readiness such as putting money away and learning the necessary skills.
Piggybacking off reason #4, it’s interesting what kind of risk most of us are comfortable with and what kind of risk we’re not. For example, we’re very used to signing our name on a mortgage that commits way too much of our income to a mortgage payment each month. One slip of our income, and we’re in major trouble. That’s definitely a level of risk. Or, we’re very comfortable allocating 100% of our savings into the stock market despite stocks being incredibly volatile (see May 6th, 2010). For a last example, we’re also comfortable putting our complete financial future in the hands of another company or person versus maybe taking charge of our future by starting a business. Yes, starting a business has its risks but so does working for somebody else. It’s time to re-evaluate risk in our lives.
Why do you think most people fail to become wealthy? Join the discussion below.