How Trying To Get Rich Can Keep You From Becoming Wealthy

Nancy L. Anderson, Contributor Aug. 28, 2024 There is a major difference between a 'get rich' mindset and a 'become wealthy' outlook.

As a career financial planner, I've had the unique vantage point to view people’s money habits. Through my work, I've reviewed thousands of people's cash flow and net worth statements when working on their financial plans. I've provided financial planning for a wide variety of people including teachers, professional athletes, grocery clerks, rocket scientists, top executives, and multi-million-dollar business owners.

Here are a few observations:

The pursuit of getting rich can actually be a detriment to becoming wealthy. First, let's define rich: according to Webster's dictionary, the definition of rich is having more than enough to gratify normal needs or desires. As a financial planner, I'd categorize someone as rich who has excess income. The rich can buy what they want, when they want, with their available resources.

The definition of wealthy is similar to rich, with nuanced differences. Webster Dictionary defines wealth as having goods, property, and money in abundance. As a financial planner, I would characterize wealthy people as "their money makes money." They are not dependent on current income, no matter how high, to provide for their needs and wants. The wealthy have substantial assets and those assets provide a lifetime income.

Being rich implies spending; becoming wealthy implies a permanent and sustainable condition of financial independence. To become wealthy, you don't necessarily need a high net worth, though it certainly helps. One of my former clients was a grocery clerk with a modest income and is now wealthy. He and his wife lived below their means and grew their wealth to provide future income. Consider this, if your money is making enough money for you to meet your needs, rather than you working for income, you are wealthy.

Here are ten lessons I've learned from both rich and wealthy people

1. Live on less than you make

Watch out for spending "creep" so your lifestyle spending only increases marginally as your income grows. In Thomas Stanley’s famous book, The Millionaire Next Door, he shares that millionaires save a high percentage of their income.

2. Pay yourself first

Earmark investments before your paycheck hits your checking account such as a retirement account at work. In addition, transfer a fixed amount from your checking account to an investment account at regular intervals.

3. Invest in growth assets to provide future income and grow wealth

Wealthy people prioritize investing in assets such as equities, real estate and businesses instead of spending on assets that depreciate, such as vehicles. For example, a down payment on a home takes priority over a new car.

4. Track spending to reduce wasted dollars

Contrary to what many people believe, wealthy people know how they spend their money. Tracking spending helps you be aware of where your money is going.

5. Stay away from investments that are too good to be true

Trying to get rich quickly may keep you from being wealthy by taking losses. These schemes often take unnecessary risk, have unrealistic expectations, or are scams.

6. Splurge intentionally

Wealthy people may travel in the first-class cabin or purchase a luxury vehicle, but they do it within their means. They aren't over leveraging to do so. When they splurge, it’s on goods or services that match their values and goals.

7. Build income streams

If you don’t need to tap into assets or principal to provide income, you are financially independent. Wealthy people focus on legacy planning for the next generation and to charities they support.

8. Don’t overspend

Wealthy people look for bargains and reasonably priced goods and services. They understand what things cost and look for a good or fair price.

9. Consult experts

Wealthy people surround themselves with a team of advisors to provide strategy and advice. Before making financial decisions, they do research, get a second opinion and review pros and cons of their available options. Using advisors helps people avoid mistakes such as losing money in investments they don’t understand.

10. Lift up others

Wealthy people have the ability to give substantial gifts to causes that inspire them and to support those around them. I’ve often seen wealthy people give anonymously to neighbors in need and substantially to their communities.

One of the reasons the wealthy are wealthy is they aren't quick to part with their funds. They watch their expenses, live off earnings, and don't spend their capital. Remember that someone doesn't need a high net worth to be wealthy. They just need to have assets that produce enough income to sustain their lifestyle for their lifetime.

No one has unlimited resources. To become wealthy, make the most of yours.

By Nancy L. Anderson, Contributor

© 2024 Forbes Media LLC. All Rights Reserved

Posted: to Wealth Management News on Fri, Aug 30, 2024
Updated: Fri, Aug 30, 2024

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