Whilst many of us dream about winning the lottery or inventing something so unique that consumers will want to buy it in their droves, the sad fact is that, unless you were born with a silver spoon in your mouth, the chances of you enjoying the millionaire lifestyle are very slim. This is just not an accident of birth either. There are people who do get to become wealthy who do not start out that way. What likely distinguishes them from you is more to do with their behaviors, attitudes, and habits. Here are some signs that you’ll never be rich.
You Spend More than You Earn
A 2018 joint study by the Association of Young Americans (AYA) and the non-profit organization AARP found that more than half of all Americans spend more than they earn. Almost half of those surveyed reported having credit card debts; more than 40% had a mortgage or car loan, whilst over 30% were struggling to pay off student loans.
In simple terms, spending more money than you have come in is never a recipe for long-term financial success, and funding the shortfall from savings or credit cards is not the answer either.
You Carry Too Much Debt
That same survey found that 70% of Americans consider their own level of debt to be a problem. Statistics released early in 2019 revealed that the consumer borrowing in the USA surpassed the US $4 trillion mark for the first time and that the average American has a credit card balance of US $4,293.
And whilst some types of debt can be considered good and an investment for the future – a mortgage, student loans for example, – that needs to be distinguished from “bad credit” where having to meet interest rate payments represents a serious drag on your finances because of the costly interest rates charged, such as with credit card balances.
If you want to get your finances into better shape, start paying down your credit card debt as a matter of priority.
You Put off Thoughts of Your Retirement
When you are young, retirement can seem a lot way ahead. There may be things you want to do or buy, or bills that have to be paid, and starting to save for the future seems to be a very low priority.
However, the reality is that the longer you leave it, the harder it is to build up a sufficiently large pension pot. For example, assuming an 8% annual return, to reach US $1 million by the age of 65, you need to set aside US $671 a month if you only begin saving at the age of 35. That is compared to just $286 a month if you start the same scheme when you are just 25 years old.
And this is not just a question of when you start, but your circumstances at the time. Whilst your salary might be lower in your 20s, your disposable income might actually be higher, because you are more likely to be single, and unencumbered with the family burdens that somebody older might have to shoulder, as well as saving for their retirement.
It is never too late to save either. The IRS allows those aged 50 or over to contribute US $23,000 annually to their 401 (k), as opposed to those younger than 50, where the limit per year is $17,500. And, for the first time in six years, the limits for individual retirement accounts have been increased for 2019 from US $5.500 to US $6,000.
You Retire Too Early
Whilst retiring early may be a dream for many, it often does not make sense from a financial point of view. For example, if you choose to draw down your 401 (k) or IRAs before you are aged 591/2, then you might face a 10% early withdrawal penalty. Equally, whilst Social Security can be claimed from age 62, the amount of benefit you receive might be as much as 30% lower than at full retirement age, which varies between 66 and 67 years old.
Equally, qualification for Medicare starts when you are 65. Retiring early, and depriving yourself of access to a company sponsored medical plan, may mean you have to pay a lot for private health care until you are eligible for Medicare.
You Ignore free Money
Most people would pick up a fifty dollar bill if they found it blowing down the street. However, they are much less prepared to advantage of the free money offers that are available to them every day. For example, if an employer matches individual contributions to a 401 (k), what is the sense in choosing not to participate in a company’s retirement plan? Equally allowing loyalty card schemes or credit cards to expire without claiming or utilizing the reward points is the same as throwing cash down the drain.
More broadly, states, federal and government agencies are sitting right now on more than US $58 billion in unclaimed cash and assets, ranging from abandoned bank accounts, unclaimed life insurance pay-outs, and pension entitlements which have been forgotten. That is US $186 for every single resident in the US. Some people are entitled to serious amounts of money – in 2012, one person from Connecticut claimed nearly US $33 million from the sales of some stock.
A simple search on MissingMoney.com could help reveal amounts that have been owed to you for years.
You Buy Everything New
Whilst buying items that are brand new can be exciting and satisfying, that does not necessarily mean that it is a good investment. Automobiles are a case in point. The average American car drops in value 30% in its first two years, and 44% over the first five. In fact, just the act of driving it off the lot of the dealer for the first time causes it to begin to depreciate in value.
Similarly, there are a whole host of other products that can be bought for substantially less than you would pay for new – designer clothes, consumer gadgets, furniture, musical instruments, and household tools are just a few to mention. And in most cases, they can be found in near-mint condition.
Whilst becoming a millionaire is just a dream for most people, what many of them fail to realize that is that one of the biggest impediments to them ever accumulating any serious wealth is their own behaviors, attitudes and lifestyle. Consider some of the ideas above for how you can make changes to how you approach your attitude to money, to see if you can improve your financial expectations.