We all come from different backgrounds, have had different life experiences and are probably in different stages of life. We do however have one thing common despite all of our difference. If we are not where we want to be financially, it is usually ourselves that we have to blame.
Why is it so difficult for people to see that they may be the cause of their own financial troubles?
It is just human nature for us to see our circumstances as more difficult than those who are successful. We tend to make excuses for our bad habits because we know how difficult it is to change. Having financial success takes time and most of us want a more immediate return if we are going to do something that is difficult.
What are habits that we really need to change to have financial success?
First and foremost is to stop all impulse buying. Impulse buying typically leads to living beyond our means and building credit card debt instead of building wealth. We are easily influenced into poor financial decisions because of the euphoria of buying new gadgets and gizmos. However, this activity is never going to be a wealth building activity.
Why is impulse buying so difficult to curb?
Two main reasons, first it might be the people we are around. If a typical day out with friends includes shopping without a purpose, impulse buying is very difficult to control. Changing what you do with certain people might be the only way to avoid impulse buying sprees. Secondly, if we feel bad about impulse buys, we will stop buying, then binge buy because we haven’t bought anything. This creates a cycle that continues to repeat over and over building a mountain of credit card debt.
What is another habit that is hard to break when it comes to wealth building?
Probably the second hardest habit to control is the mindset of buy now, worry later. This leads to credit card debt and money that should be going to savings being siphoned off to pay the interest on our debt. A better mindset is save now, get rich sooner. If you plan for what you are going to purchase, you are more likely to have the money, or be able to pay the debt back without impacting your savings activities.
What else are we doing to undermine our efforts in becoming rich?
Not having a sense of urgency about building wealth is a big factor, especially for those under the age of 45. They can be complacent and generally happy with the status quo. Many people put off financial planning until it too late because they think they have so much time to build their wealth.
Why is waiting to make financial plans such a bad decision?
When it comes to growing your money and having the easiest path to wealth, time and compounding interest are your two best strategies. Start saving early and let your money work for you instead of you working for your money – that is how compounding, the interest you earn on your earnings, becomes so powerful.
How much can time and compounding help your wealth building?
The general rule of compounding interest is that about every 7 years your savings will double if you keep investing at the same rate and earning the same return. Your goal is to get 40 years or more of savings so that you get the chance for 5 – 7 doubles. The money earned on your savings could be 3 times what you contribute if you can get 6 doubles.
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Categories: Money Matters, Planning, Spending