Why You Are Not As Wealthy As You Could Be

I recently read an article that detailed the psychology behind why each of us has financial difficulties. I did agree with the central theme of the article, which was: It is your fault!

Let’s face it, the reason you have excessive debt or poor savings, is you. We can’t blame the economy, our employer, or our spouse for our lack of green backs. We created the problem. The reality of it is that most Americans could be much wealthier than they are if they made just a few changes in their behavior.

Here are the TOP BARRIERS TO BECOMING WEALTHY:

You don’t save enough. I have said before that if you save your money, one day it will return the favor. The average savings rate in the United States is hovering around 4.4%. I recommend that you regularly save at least 10% of every dollar you make. If you are saving more, congratulations sparky! Millionaires save on average about 20% of their incomes, according to Thomas Stanley author of The Millionaire Next Door. See a trend here?

You carry high-interest debt. Another trend I’ve seen in my financial planning practice is people coming to me with limited retirement savings and wanting me to discover secret they’ve missed to retiring at a decent age. Most of these people have been very liberal with the credit card spending. The irony is that they have had this type of debt for so long, that it almost seems acceptable to them!

Americans carry an average balance of over $15,000. The average interest rate is a whopping 15%! This is costing thousands of dollars of interest every year. It’s no wonder that you can’t seem to find the extra money to save. 

You let your emotions drive your investment decisions. I have spent my 20 years in the investment business trying to teach investors about the dangers of market timing. I know just how hard it is to stick with a strategy and discipline when @$%* hits the fan. Our fight or flight instincts tell us to “get out” of the markets during difficult markets. Then our greed impulse tells us to jump back in, often at precisely the wrong time.

Here’s the part where I do a shameless plug on hiring a professional investment advisor. According to a study by Aon Hewitt and Financial Engines, investors who sought out help ended up having average returns almost 3% higher than those that didn’t. Advisors help you stick with a strategy even during tough times. Having that financial advisor to develop a strategy may be the best decision you ever make.

You spend too much money on depreciating assets. I know friends and clients that buy a new car every few years. Cars depreciate on average about 11% the second you drive them off the lot. In addition, they retain less than 60% after three years. If you buy a $30,000 car, you are losing $12,000 in the first three years to depreciation. Personally, I was in this trap for many years. The best thing I ever did was buy a certified pre-owned car with low mileage….and keep it.

Rent is another type of depreciating asset. I took a chance within 5 years of my marriage, when we really didn’t have a lot of money and bought my first home. It was a great decision. I stopped paying someone else’s mortgage. That is essentially what you are doing when you rent. Owning a home is a good investment. It allows you to build equity with a fixed payment, when rent payments continue to rise.

You started your plan too late. Over the years, I’ve spoken to many parents that ask me to speak with their adult children about starting a savings plan for their future. The tell me that their number one regret is that they started to save money so late. By waiting, you don’t allow the compound effects of money. Get started, you won’t regret it.

Get going, start saving, reduce your debt and get a good financial advisor. These are the things you can control. Building wealth is simple but not easy. If you would like a free evaluation of your wealth building plan, write to me at  david@lexwealth.com, or call me at (859) 225-2596 so I can help you build more wealth.