Why Are You Not Rich?

Are you financially free or even rich? If not, what’s stopping you?

Well, perhaps the main reason is that you may be living like you are rich already, and so hopefully, reading this blog will improve your financial savvy. The following is a list of major traps that can confine you to many years as a financial slave in the rat race, so avoid or escape these as soon as you can:

1. Spending your entire pay check.  Many americans will admit to spending their entire paycheck, and sometimes even more than their income at least a few months a year, using credit cards or dipping into their savings.

2. Buying new stuff. Not only is the paycheck being spent in its entirety, it is being spent on new stuff. Why not by something used, but in a great condition but paying only half the cost, or even less. A new car will loose around thirty percent of its value in a couple of years and nearly half within five. Thus, buying a low mileage, five year old reliable model can save you a ton of money. A lot of other useful, frugal things can be bought used at great discounts, such as bikes, tools and books.

3. Holding too much debt. The first two habits rapidly lead to the third major problem, which is holding too much debt, often on credit cards. Consumer debt is the worst kind of debt, often taking many years to pay off and having very high interest rates that could be used instead for building up. Tuition debt can be a significant drag too, but there are certainly arguments for and against this, but clearly the lesser the better.

4. Not Saving Enough. The average savings rate for an american is only around five percent, with about only half of americans in surveys revealing that they have a savings plan. Savings (for investments) are a major way to build wealth, and to limit getting trapped in high interest consumer debt, an emergency fund can be of significant benefit.  

5. Not Contributing to Retirement. If you do not have retirement savings or are not contributing to these, it is unlikely that you’ll ever be financially free, unless you have a rental property empire or the such like. Moreover, you are likely passing up free money, in terms of employer matching and also missing out on tax savings from Uncle Sam, by contributing tax free and lowering your effective taxable salary.

6.  Bad Investment Strategies. Great, so at least you are saving and investing, but are you doing so badly? Watch out for account churning, where you are constantly buying and selling shares and loose significant amounts to fees. Another common trap is buying high, when business confidence is high but when the market is nears its top, and then selling low, when confidence is low but the market is about to start a multi-year bull run.