Do You Make These Mistakes About Wealth?
As a child, I thought about wealth as a fantasy. I had this idea that the individuals with wealth were the ones that drove luxury cars, lived in big houses, and traveled abroad for vacations. Growing up and studying money and wealth creation, I realized I was wrong. Because what I thought were signs of wealth are symbols of wealth. There is a difference between building wealth and consuming wealth. When you create wealth, you get richer. You are likely to grow poorer when you are a spender or consumer. The secret to building wealth is investing and saving more than you spend. Wealthy individuals have the habit of saving and investing more of their income than the rest of the population. The late Dr. Thomas Stanley bestselling author of The Millionaire Next Door observed that real millionaires lived frugal lives. Stanley also noted that millionaires spent their money differently than others. Dr. Stanley’s book is not popular with most working adults. But if you are serious about becoming a millionaire, you should read the millionaire mind. Let me make it clear that building wealth is unrelated to appearing to look gorgeous. To create wealth, you must believe in prudence and self-restraint with money. A US Census Bureau statistic shows that 95 % of working adults will either become penniless, rely on social security or relatives to care for them at retirement. When you look at the US Census Bureau Statistics, you’ll think anyone reading them will prefer to choose thrift to a life of hardship at retirement. Right? Wrong! Because you and I make the same mistakes about building wealth I thought I should write about them I have made tons of money in one breath and then lost all the money I made in the twinkling of an eye. I am wiser about building wealth and much more careful about my money Here are the mistakes I have made about building wealth you should avoid. Mistake #1: Increasing your spending as soon as your income increases I have fallen into this trap of spending money as soon as I get a pay raise or job promotion. Oh yes, why not? When your income increases from $2000 to $8000 monthly, won’t you feel like a star? I am sure you will. What I used to say to myself was, “be kind to yourself”… “Life’s too short enjoy it while it last,” and before you know it I had maxed out my credit. And I am back to the same financial level as before my pay raise. How do you overcome this urge to splurge whenever you get a pay raise? The first thing I would suggest: have a wealth-building plan. Why? Because when you have a plan for how you intend to invest your money, it’s easier to save any extra income you earn Another way to avoid spending your bonus is to open an investment account. You must save that money in your investing account as soon as you get any bonus. Never use money from your investing account unless you want to invest in your wealth-building plan. If you already have a mutual fund account or retirement account, you can also increase the resources, you have with your pay rise. Sometimes instead of saving money or investing…I just use the extra income I earn to pay my outstanding debt. If you think about it, credit card debt loans are obstacles to building wealth. The earlier you can get rid of your debt, the higher your chances of creating wealth. If you desire to build wealth…you must avoid spending more than you earn. You must learn the habit of saving more than you earn Mistake #2 Thinking Scrimping and Saving will make you wealthy When you read some of the classic wealth-building books, you’ll find on the New York bestseller list you’ll get advice like “budget and save,” Invest in the stock market with as little as $50 a month and allow the power of compound interest to work on your savings.” I have no objections to most of the advice about saving your money and investing in the stock market. But the problem with this theory of building wealth by saving and investing in the stock market is that it hangs on factors that are beyond your control The first factor that the savings-and-scrimping theory relies on is compound interest. My teenage son will undoubtedly become a millionaire if he starts to invest $50 monthly in an index fund because of the power of compounding. On the flip side, compounding will not work for a 55-year-old man ten years away from retirement. The idea that you can scrimp your way to wealth is also impractical. Why? Because just like you cannot diet, your way to becoming healthy-it’s also nearly impossible to deny yourself of the good things of life. What’s the point of pinching and saving only to die a miserable person with so much money that your offspring blow in less than three months I believe in savings and investing. But I disagree that you should scrimp and save to build wealth. What you need is to adopt a frugal lifestyle. How? To live a frugal lifestyle means you develop an attitude toward spending money that allows you to enjoy life and at the same time building wealth. A prudent person does not attach his emotions to material things. A frugal person delays gratification and also avoids impulsive spending. A wise person spends money so that he enjoys life without necessarily going into debt. A frugal person knows that his future wealth depends on the intelligent decisions he makes today about investing his money. When you think about your life, you’ll see that the things that give you pleasure are not expensive. For example, you don’t have to go on a vacation to Disneyland to spend quality time with your family. Enjoying an evening with your schoolmates in your house or a restaurant will not