Everybody dreams of owning their own home, being able to drive new cars every few years, and giving their kids extra opportunities in life. However, most people never realize this dream because they either do not discipline themselves enough with their money or they were never taught about saving. After seeing both myself and others make avoidable money mistakes, I have come up with the following 4 reasons why most of us never become millionaires.
The most important thing that someone can do is begin to save. While I have often read that we should save 10% of our income, I follow the following rules: save 10% for retirement alone, save 10% for a new car or house downpayment, save 5% for an emergency fund, and live off the rest. If you are in significant non-mortgage debt where you owe more than 50% of your annual salary to car loans, credit cards, or student debt, you should not save for a car, but pay down debt with above-minimum payments. If you are not saving right now or do not save enough and feel that you cannot start to save 25% of your income, begin to look at expenses. Cell phone data plans, cable or satellite television, and brand name clothes are things that people live happily without everyday. The key is to break yourself of the spending habits! Take-home message: Cut expenses and start saving today.
Not Saving Effectively
Okay, so you’ve started to save some serious dough: Are you saving it effectively? Retirement savings should be placed in a tax-advantaged account such as a ROTH IRA, Traditional IRA, or 401(k) at work. Anyone with a 401(k) at work should be sure they are receiving their maximum company match from their employer. Never pass on free money. If you are not sure if you are taking advantage of this benefit at your workplace, ask a human resources representative. Other forms of savings such as for purchases or an emergency fund should be placed in a high yield online savings account. CapitalOne currently offers 1.10% interest on savings plus a bonus each quarter if your account is worth over $1,000. Take-home message: Give your money the opportunity to work for you.
Thinking You Can Do It Yourself
Many people start to save for a while only to go back to their old habits. They cut back expenses, begin to save, and things are going great. After time, they see all the money they are sticking away for the future and start to think how much fun it would be to start spending extravagantly again. Discipline is the key to effective and successful money management. Hiring a financial consultant to help guide you through this lifelong process can seem expensive, but when you think about it in terms of a percentage of your savings, you can easily convince yourself it is worth the money. Even if you know how to allocate your money right, hiring someone to hold you accountable is worth every penny. Take-home message: Shop around for someone you can trust and hire a financial consultant now.
Leaving The Kids Out
Teaching your kids money management skills is extremely important. First off, it gives you the peace-of-mind that they will be financially sound in the future. Helping them now will give them the opportunity to succeed financially as they age and become independent, self-sustaining adults. Secondly, it is important to teach your kids good money management skills because when they move out, they should stay out. Letting kids live with you as adults for the summers during college or for a short period of time is normal, but kids moving back long-term as adults is a huge financial burden to the parents. Teach your kids money management skills now and they will allow you to focus on your own financial goals during the years of your life where aggressive retirement savings is so important. Take-home message: You have the chance to mold good values into your children, make money management an important one!