Wealthy people generally aren't born that way. A lot of them devote their lives building their fortunes by working hard, spending minimally, saving a lot and investing intelligently. It might seem like a simple plan, but the fact that the large majority of Americans fall short of millionaire status demonstrates that it's complicated.
Keep reading if you would like to learn what you might be doing that’s keeping you out of the millionaire's club or find out how you can change your ways and build your own nest egg.
1. You’re not saving enough
If you’re not saving money, you’ll never be rich. It's often ignored but it’s tough to get around that evident principle. Even if you earn six or seven figures, if you’re spending it all, you still net zero.
Things you can do
Start by saving as soon as possible. As soon as you start putting your money to work, the less you truly have to save. You'll need to start saving $671 each month if you are 35 in order to reach $1 million by the time you turn 65, this assumes that you earn an 8% annual return. You'll have to save $1,698 a month if you start at age 45 to hit $1 million by the time you turn 65.
What can you do to start saving? The first step is you need a budget. Outline all of your expenses to see where your money is going. This will help you figure out where you can cut costs and save. Any small percentage you can come up with is a good start. Any time you get a bonus or extra cash put it directly into savings before you have time to spend it.
2. You’re living outside your means
It can put you in debt if you are spending more than you earn. If it makes you feel better, you’re not alone: According to the National Foundation for Credit Counseling, about one in three American families carry credit card debt from month to month. Among those household’s that are carrying debt month to month, the average credit card debt is roughly $16,000.
Things you can do
As stated already, you need a budget to make sure that you have more money coming in than you do going out. As easy as it is to get credit, it's just as easy to fall into thinking that you are able to afford more than you truly can.
Even if you get to the point of being rich, you should probably still try to live like you're not. Studies and surveys have shown that a majority of millionaires don't actually think of themselves as being wealthy. If you never think of yourself as being well off, and you sustain the same lifestyle after your income and savings increase, you should be able to save even more towards your short term and long term goals without losing an ounce of well-being.
3. You’re drowning in debt
As you hopefully already know, debt can be a threat to your financial happiness. If you're continually paying credit card bills and racking up interest fees, you’ll never have a chance to save money.
However not all debt is necessarily bad. Borrowing money to go to college, to get professional training or maybe start your own business might help enhance your career and income potential. Particularly in a low interest rate situation, the investment could be well worth it. Truthfully, borrowing money is one of the best funding strategies used by wealthy individuals with about 60% choosing to use bank credit before taking from their own assets for fast cash.
Things you can do
If you’re already having difficulty with debt, make certain that you to develop a repayment plan. A good approach is to pay off the debt with the highest interest rate first. Once you get rid of that debt then the more you save on interest. An alternative strategy is to pay off the smallest debt first to provide yourself an emotional boost and inspire you to keep dwindling down your debt.
If you're thinking about taking out any new loans, be certain that you understand all the terms, including your interest rate and repayment details. This will help you decide whether or not that it is really worth it.