There’s a common misconception that if you’re not rich then you’re simply not working hard enough. And that’s not completely true. Of course, most people who have made money have worked hard (no one becomes a millionaire by sitting on the couch watching TV all day) but you also need to refrain from financially damaging habits and pitfalls along the way to build up wealth.
Here are eight reasons why you may not be a millionaire – yet:
#1 Spending more than you make
One of the basic principles of personal finance is to spend less than you earn. It doesn’t matter how much money you make, if you spend more than what you’re pulling in, your wealth will deteriorate rapidly.
The easiest way to get a grasp on your spending is to understand your living expenses and set limits if needed. Bank statements don’t lie – categorise each of your expenditure items by type and find out where you’re spending money. If you feel you are spending too much in one area, then make a commitment to change your habits. Create a spending plan and allocate how much you would like to spend in each area, trying to leave at least 10% for savings.
#2 Borrowing too much to buy a house
A larger mortgage means higher monthly repayments, and expenses on larger properties are usually higher too. Don’t buy bigger than what you need. Did you know that over 30 years, a loan of $800,000 at 5% pa will have loan repayments of just over $1,500,000 whereas a loan of $1,200,000 will have total loan repayments of almost $2,400,000. That extra $400,000 in purchase price ends up costing almost $1m in additional loan repayments. Many people think that buying a big house is a good investment which it can be, but buying a house that fits your budget (and needs) and saving the rest can often be a smarter choice.
#3 Replacing things too soon
Don’t try and keep up with technology and gadgets. Use it if it works and only buy when something is broken and can’t be fixed. Don’t be tempted by what’s the newest and shiniest. Get greater value from what you bought by using your purchase for its whole working life.
#4 Not setting clear goals
Setting goals is important for achieving what you want by having a plan and a focus. Whether it’s paying off your credit card or saving up for an investment, remembering that you’re working towards something will help motivate you to save and re-align any off-track spending.
There’s also a specific way you should be setting your goals to help you action them. Breaking down what you want to achieve into smaller, quantifiable terms that can be carried out more easily gives you the best possible chance of reaching your goal.
#5 Fear of failure
American author Jack Canfield famously said that everything you want is on the other side of fear. Remember that getting to where you want is often not a straight line from A to B. You should expect that you might fail, but you should also know that you will definitely get back up. Failure isn’t going to kill you but staying where you are and being afraid to change can lead to stagnation.
#6 Not making sacrifices
In order to achieve what you want in life, you will most like need to make sacrifices. This might mean saying no to social events, watching less Netflix or forgoing that dress or suit you had your eye on. A good self-reminder is not to give up what you want most for what you want right now.
#7 Not building your skill set
Never stop learning. And if you want to increase your earnings, you need to keep learning and building your skill set. This might mean expanding your knowledge on what you know already, or it could mean adding a whole new set of skills to increase your profile. Whatever it is, take the time and effort to develop your expertise for long-term success.
#8 Neglecting your health
Nothing can buy back your health so make it a top priority and look after it. Quit smoking, eat real food, exercise, practice kindness, get enough sleep and get a check-up every year.
One of the biggest silent killers of our busy modern-day life is stress. Stress from isolation and a lack of connection with others can also contribute to a range of chronic diseases and severely affect your overall wellbeing. Make time to rest and recuperate, but also make time for the people and causes you care about. Taking better care of yourself and others will give you a better chance of performing at your very best.
Often, saving a million dollars is not about having a 7-figure pay check or inventing the next Facebook. You can’t always measure quality of life with a dollar amount. It’s more about cultivating good habits, staying healthy and connected, and making sound financial and life decisions along the way. The key is to align with what you value most. I wish you every success.
If you need help planning your financial future, contact the team at Align Financial on (02) 9913 9995.