Money isn’t everything in life, but most people wouldn’t turn down the chance to be wealthy. According to finance experts, building wealth isn’t as hard as you think and can be achieved on even a modest income.
“At some point you have to define what wealthy means to you,” says Kyle Winkfield, managing partner of O’Dell, Winkfield, Roseman and Shipp in Rockville, Maryland. Once you know that, it will be easier to create a clear vision of how to achieve true wealth. However, you’ll never reach it if you’re doing these 12 things that sabotage your chances of success.
1. You’re waiting to start saving. Ric Edelman, founder of Edelman Financial Services with locations in 16 states, says the No. 1 way people sabotage their efforts to become wealthy is to procrastinate. “It’s easy to accumulate wealth if you start soon,” he says. He notes a 20-year-old who saves $3 a day could easily have $1 million invested by the time he or she reaches age 65. However, by waiting until age 50, that person would need to save $80 a day to hit the $1 million mark in 15 years. In other words, the earlier you start saving, the easier it will be to retire a millionaire.
[See: How to Save $1 Million by Retirement.]
2. You can’t save much so you don’t save at all. Oftentimes, people delay saving because they have limited disposable income. “People like to tell themselves stories about why they can’t save the little amount that they can,” Winkfield says. “You don’t have to go out and swing for the fences.” Small amounts can add up over time. Winkfield notes he has one client who was a teacher assistant and managed to amass $6 million by retirement. It wasn’t thanks to a windfall but because he started saving young and put away whatever he could.
3. You stop and start your savings. Even people who start saving at a young age may end up sabotaging their chances of wealth. “A lot of people start, but then they stop,” says Justin Halverson, founding partner of Great Waters Financial in Minneapolis. They may decide to buy a house, have children or let other priorities take precedent over savings. While their earlier investments will likely continue to compound and grow, failing to be consistent with deposits could mean less wealth in the long run.
4. You use your 401(k) like a piggy bank. Matt Fellowes, founder and CEO of financial planning platform United Income, says too many people lack emergency savings. As a result, when unexpected expenses come up, they turn to their retirement accounts for cash. According to research Fellowes conducted for the website HelloWallet in 2013, a quarter of those with 401(k)s or similar accounts took withdrawals for nonretirement needs. That resulted in $70 billion in annual withdrawals, not counting the cost of lost future gains and potential taxes and penalties people had to pay on the money.
5. You’re looking for a way to get rich quick. It’s natural to want to find a shortcut to wealth, but Fellowes says not to bother. “Trying to get wealthy fast is a good way to get poor fast,” he says. From lottery tickets to online scams, falling for the idea money can be made overnight is destined to derail long-term wealth-building for most people.
6. You’re trying to time the market. One way people try to get rich quick is by timing the market. They attempt to buy stocks at a lower price and sell them quickly as soon as their value increases, often completing both transactions in a single day. “Day trading is a fast way to zero out your bank balance,” Fellowes says. Buying and holding investments for the long run is more predictable and more likely to result in wealth.
[Read: How to Retire Without $1 Million in a 401(k).]
7. You let your emotions dictate money decisions. Financial advisors agree having a sound financial plan and sticking to it is far superior to jumping on the latest hot stock. “The fear of missing out gets them in at the wrong time and out at the bottom,” Halverson says. Having a plan, with the right amount of risk, means investors can feel secure in weathering the ups and downs of the market.
However, investing isn’t the only time people make emotional money decisions. They may hold onto an unaffordable house for too long, make hasty agreements in a divorce or be enticed to splurge after a long work week. All can sabotage your chances of being wealthy.
8. You don’t manage risk properly. Having a good investment plan is one way to manage risk. Another is to ensure you have enough emergency savings and the right insurance coverage to protect your wealth in the event of an unforeseen situation. “You could do everything right in terms of investing or savings, but if it could be easily undone then there’s no point,” says Neil Krishnaswamy, a certified financial planner at Exencial Wealth Advisors in Frisco, Texas.
9. You undervalue your worth. While you can build wealth on a modest income, it’s easier if you earn more. “It’s important to think about how you’re using your human capital in addition to your financial capital,” Fellowes says. Failure to improve skills, ask for a raise or seek out new employment opportunities could all make it difficult to build wealth.
10. You focus on the wrong expenses. When it comes to building wealth, Edelman says people sabotage their efforts by focusing only on big expenses such as which house to buy. “What really matters is not the major decisions, it’s the minor decisions,” he says. Consider selecting a car with better gas mileage, eating at home more often than eating out and taking the bus rather than a taxi. “It’s the pennies that matter,” he says, adding that these small savings are where people are most likely to find extra money to invest.
11. You’re already living like you’re wealthy. Big expenses can be a big detriment to a financially secure future. “If you’re enjoying the fruits of your labor too early, you’re not going to achieve wealth,” Fellowes says. He notes many millionaires and billionaires continue to live frugally even after they accumulate wealth. “If you fake it until you make it, then you never really make it,” Halverson says. Rather than buying a big house or expensive car now, delay those purchases until your income and savings can justify the expense. Even then, you may find it’s better for your bottom line to skip them altogether.
[Read: How Super Savers Max Out Their Retirement Accounts.]
12. You expect to always be poor. Halverson strikes a philosophical chord on the final way people sabotage their chances of being wealthy. “We revert back to the image we have of ourselves,” he says. Those who expect to always be poor will likely find that to be a self-fulfilling prophecy. Halverson suggests finding and spending time with others who are motivated to improve their financial fortunes. “If we can get around people who make strong financial decisions, it will rub off.”
Becoming wealthy isn’t necessarily hard for those who have the self-discipline to save now in order to be prosperous later. While there are no guarantees, you can increase your chances by avoiding these 12 financial pitfalls.
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12 Ways You’re Sabotaging Your Chances of Being Wealthy originally appeared on usnews.com
