Becoming a millionaire is becoming increasingly difficult in today’s economy. According to a survey, the United States has around 10.8 million millionaires – and having just one million dollars in your bank account simply isn’t enough to be considered ‘rich’ in the U.S.
So how much money do you need to have in order to be wealthy? 2017’s Charles Swab study answers: $2.4 million – 30 times more than the net worth of an average American. Most people will never come near that number if they don’t know how to handle money. But if you want to join the ranks of the millionaires despite having an average salary, avoid these five money mistakes that are preventing you from building real wealth.
You Are Spending All Your Bonuses
Put your money in a retirement fund instead of spending it on depreciating assets
Everybody wants a raise because of the excuse that they want to save, but when they do get one, they start splashing out on things that they don’t really need – especially during the holiday season. Survey shows that the average American spends 90% of their income even after getting a raise or bonus. Most of the extra money goes into buying expensive things like cars, homes which often result in loans that take years to pay off.
But if you’re a big spender but not a big saver then prepare yourself to live the rest of your life with an average net worth. People who know how to invest every extra dollar that they get are the ones who successfully multiply their wealth to become millionaires. Instead of spending your raise on things you don’t necessarily need, bump up the contributions for your 401(K) plan so that your money can grow exponentially over time.
You are Paying Interest on Bad Debts
Most people in America have a negative net worth due to the amount of debt they have accrued. If only we had enough common sense to know the difference between appreciating and depreciating assets, we wouldn’t have to pay such large amounts of monthly interests on loans.
Student loans and mortgages are considered as good debt since education is an appreciating asset which eventually results in high paying jobs – so is your dream home. On the other hand, car loan is considered bad debt since it is a depreciating asset which goes down in value with time and accumulates a large amount of interest payments.
You Don’t Have a Plan for Retirement
Social Security alone won’t cover all your medical bills after retirement
If you’re relying solely on your social security to keep you afloat after retirement, then you’re making a big mistake in terms of saving for the future. The problem with social security is that that the average benefit that you will get after retirement is far too less to enjoy a happy, fulfilling life. Study shows that four out of ten future retirees plan to live on social security which will put them below the poverty line and leave no disposable income to cover other cost associated with healthcare.
You’re Starting Late with Retirement Savings
If you want to save more, you must start early – it’s that simple. Most people in America aren’t as rich as they wish they were because they don’t start saving or investing early enough. While it’s possible to save a considerable amount of money for retirement, if you start around the age of 40, it won’t be nearly enough to turn you into a millionaire after retirement. The benefit of saving from an early age is that you won’t have to put away too much money in order to live a luxurious life after retirement.
You Aren’t Smart About Investing
Start saving early so that you can have a bigger retirement income without having to make big contributions
You don’t have to know everything about the stock market in order to make smart investment decisions. But what you do need to know is which 401(k) plan you need to invest in for maximum returns. Apart from the retirement plan, you can invest in mutual funds or maintain your own stock portfolio depending on your investment knowledge.