Financial freedom seems to escape many despite their best efforts and budgeting (for home and outside expenses), while others find wealth so easily that their path appears uncomplicated (or so it seems from afar, anyway). This begs the question – what sets those stuck in poverty apart from the wealthy?
What daily choices contribute to building wealth rather than draining it? Let’s explore the subtle habits that typically distinguish the poor from the rich. Understanding these habits allows us to adjust our relationship with money.
Perspective is a powerful tool and is required to build awareness around what’s working (and what’s not) for building wealth. For anyone who’s already successfully made some money, the mistakes made by those who are struggling can be agonizingly obvious. Yet, to the strugglers, they are too busy scraping by to realize the problem.
1. Living Paycheck to Paycheck
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It’s a vicious cycle: Earning just enough to handle immediate expenses leaves little to save and creates dependence on credit.
A 2023 study by PWC revealed that 51% of Americans live paycheck to paycheck, cutting across income levels. The truly wealthy focus on meticulous cash flow tracking. Start with a simple budget, analyze recurring expenses, and discover where money “leaks.” Several online tools and apps help track income and spending.
2. Impulse Purchases
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The urge to buy without forethought fuels overspending, often resulting in buyer’s remorse. Slick marketing campaigns and social media comparisons push instant gratification over long-term financial planning.
Research indicates that purchases driven by impulsive desire rather than carefully considered necessity often lead to regret. The wealthy practice delayed gratification. They weigh spending decisions based on their long-term goals and values.
Implement the 24-hour rule. Before buying, force yourself to pause and reconsider for a day. Often, the impulsivity fades, and you realize it’s not a genuine need.
3. No Emergency Fund
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Unexpected expenses like car trouble or medical bills can derail even the most well-intentioned budgets, forcing reliance on high-interest credit cards. According to Bankrate’s 2024 annual emergency savings report, only 44% of Americans can cover an unexpected $1,000 expense from savings alone.
The wealthy treat their emergency fund as non-negotiable. It’s their financial safety net and minimizes the disruption of unpredictable life events. You can start small by aiming to save just $20 weekly until you reach an initial goal of $500. Automatic payroll deductions to a separate savings account make the process nearly effortless.
4. Neglecting Retirement Savings
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Procrastinating on retirement savings might feel unavoidable when present needs compete for funds. However, neglecting the power of compound interest will prove costly in the long run. To retire comfortably, one should have at least 1x their salary saved by age 30, and 3x by 40.
The wealthy start saving for retirement early and consistently. They capitalize on compounding returns. Research your company’s 401(k), especially if it offers matching contributions. For self-employed individuals, consider a Traditional or Roth IRA.
5. Not Investing
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Financial markets can feel daunting. Fear of losing money often leads to inaction rather than educating oneself about investing and the benefits of long-term growth.
Inflation quietly erodes the value of cash sitting idle. Investing strategically in a diversified portfolio is crucial for outpacing inflation and building wealth over time.
The wealthy see investing as a tool for compounding growth. They diversify their holdings to mitigate risk and regularly review their investment strategy.
Start educating yourself! Explore credible online resources and beginner-friendly books on investing basics. For those apprehensive about navigating the stock market alone, robo-advisors offer simplified solutions based on your risk tolerance.
6. Lack of Financial Goals
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Living without a clear financial plan creates aimless spending habits. Without clear short- and long-term goals, saving and investing lack focused direction. A lack of goals makes it harder to prioritize financial needs, leading to reactive rather than intentional money management.
The wealthy set ambitious but achievable financial goals and diligently track their progress. They don’t just aim for wealth; they meticulously plan its creation.
Use the SMART framework to set your goals: Specific, Measurable, Achievable, Relevant, and Time-bound. Break large goals into several smaller, attainable milestones.
7. Not Prioritizing Financial Education
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Traditionally, schools rarely teach about budgeting, investing, debt management, and other essential aspects of financial literacy. This creates a cycle where lack of knowledge hinders informed financial decision-making.
Understanding basic financial concepts is empowering and allows informed choices to improve one’s financial position.
The wealthy are lifelong learners when it comes to money. They seek information, read, listen, and expand their financial knowledge base to stay ahead.
Dedicate a bit of time each week to financial education. Excellent books, podcasts, blogs, and courses are available on various platforms. A little goes a long way in building financial confidence.
8. Blaming External Circumstances
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While systemic factors like income inequality and lack of opportunities play a role, fixating on them can lead to a victim mindset, diminishing perceived control over one’s finances. Focusing purely on elements beyond individual control breeds a sense of helplessness and prevents proactive change.
The wealthy accept challenges but remain solution-oriented. They focus on what they can control and leverage available resources to improve their circumstances.
Acknowledge external conditions, but brainstorm things within your reach: Upskilling to increase earning potential, searching for better opportunities, or starting a side hustle for additional income.
9. Fear of Failure
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Fear of making financial mistakes can lead to overly cautious, risk-averse approaches that miss out on potential growth opportunities. Excessive caution may prevent investing, starting a business, or even negotiating a better salary, limiting financial growth.
The wealthy see failure as a learning tool. They embrace calculated risks and diversify investments to manage risk and create opportunities for substantial gains.
Start small! Thorough research minimizes fear. Consider low-risk investments to dip your toes into investing before venturing into riskier assets.
10. Focusing on Short-term Gratification
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The instant pleasure of spending money on wants rather than saving for long-term goals like building an emergency fund, buying a house, or retiring comfortably can have significant financial repercussions.
Delayed gratification is a cornerstone of achieving larger financial goals. Impulsivity and impatience hinder building wealth over time.
The wealthy see their current sacrifices as investments in their future. They prioritize financial gains that come with discipline and long-term thinking.
Visualize the concrete benefits of your choices. When tempted to splurge, picture the big-picture goals made possible by saving. Celebrate small wins to keep yourself motivated!
11. Not Negotiating
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Whether negotiating a salary, a better deal on a service, or a lower price on a big purchase, fear, discomfort, or bthe elief that prices are set in stone can lead to leaving significant money on the table. Every little bit counts! Developing the confidence to negotiate saves money both upfront and long-term.
The wealthy understand that almost everything is negotiable. They leverage this knowledge by researching, approaching negotiations strategically, and asking for what they want.
Start with small, less intimidating negotiations first to build your confidence. Always research before any negotiation to gain leverage! Remember, the worst that can happen is a “no.”
12. Settling for a “Good Enough” Job
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While stability is important, staying in a job with limited growth, below-market compensation, or a toxic environment can hinder long-term financial potential and lead to stagnation.
Investing in yourself and your skills directly impacts your earning power. Staying in a comfortable rut keeps you from reaching your full financial potential.
The wealthy proactively seek better opportunities, constantly upskill, and increase their value. They see their career growth as an integral part of building wealth.
Regularly assess your current role and career goals. Consider networking, taking courses that enhance your skillset, or actively seeking positions aligned with your goals and desired income level.
13. Lack of Multiple Income Streams
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Relying on a single salary can increase financial vulnerability. An unexpected job loss or economic change can significantly destabilize income and make it difficult to manage expenses or build savings.
Tom Corley, in his book Rich Habits, shared the results of a 5-year study comparing 233 wealthy individuals to 128 lower-earning individuals. He found that 65% of self-made millionaires had at least three income streams before accumulating their first million dollars.
The wealthy often have multiple income sources. This could include rental properties, a side business, or dividends from investments. They recognize that diversifying creates stability and enhances earning potential.
Think outside the box! Explore ways to monetize existing skills, sell unused items, consider freelancing, or explore online platforms for potential passive income opportunities.
14. Procrastinating on “Difficult” Financial Tasks
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Rebalancing portfolios, tackling debt, or estate planning can seem daunting. Procrastination stems from fear of making mistakes or lack of knowledge, often leading to missed opportunities or worsened financial difficulties.
Ignoring complex tasks doesn’t make them go away. Putting things off ultimately leads to missed gains, increased debt, or costly penalties in the long run.
The wealthy prioritize these important, albeit sometimes tedious, tasks. They seek professional guidance where necessary to ensure their finances are optimized.
Break large tasks into smaller, manageable steps. Set deadlines for yourself, and reward yourself for tackling those challenging tasks. If necessary, consult a financial advisor or tax specialist.
15. Lack of Focus on Health
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It’s easy to prioritize work and other obligations at the expense of one’s well-being. However, neglecting physical and mental health can have long-term financial consequences that include costly medical bills and lost productivity. Poor health can lead to chronic conditions requiring expensive treatments, time off work, and diminished earning potential.
The wealthy recognize the link between health and long-term financial stability. They invest in preventative healthcare and make healthy lifestyle choices to preserve quality of life and earning potential.
Incorporate even small acts of self-care into your daily routine. Get adequate sleep, move your body regularly, prioritize nutritious meals, and find healthy ways to manage stress.
16. Not Seeking Out Mentorship
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Seeking guidance from those with more experience can accelerate growth and help avoid pitfalls. Many don’t actively pursue mentorship, missing out on valuable knowledge and support systems. Mentors provide insights and connections, offer guidance on navigating challenges, and provide valuable networking opportunities.
The wealthy understand the power of mentorship. They foster relationships with individuals who can help them reach their goals and create a roadmap for success.
Don’t be afraid to reach out! Identify individuals in your field with the financial knowledge you seek and respectfully request their guidance. Explore formal mentorship programs or networking events.
17. Squandering Windfalls
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When receiving unexpected income (tax refunds, bonuses, inheritances), the temptation to splurge can outweigh making a plan for long-term financial benefits. Unplanned spending can quickly deplete windfalls, providing short-term satisfaction but missing out on the potential to accelerate progress toward financial goals.
The wealthy see windfalls as an opportunity to boost their wealth-building strategies even further. They prioritize using those funds to pay off debt, invest, or build their emergency fund.
Create a plan for unexpected income ahead of time. Set aside portions for specific goals. Even small windfalls can significantly impact your finances if used strategically!
18. Neglecting to Teach Children about Money
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Financial education often doesn’t happen at home. This can lead to the perpetuation of poor financial habits, making it hard to break generational cycles and build wealth for the future.
Children learn by observing and modeling their parents’ behaviors. Avoiding discussions about money creates a cycle in which financial literacy remains a mystery.
The wealthy prioritize open conversations about money. They instill values of budgeting, saving, investing, and informed financial decision-making at an early age, setting their children up for success.
Engage in age-appropriate discussions about money. Use everyday experiences, such as shopping or giving allowances, to impart essential financial lessons.
