There are a lot of reasons people end up stuck in financial mediocrity, and almost none have anything to do with how much money they make. Unless you are at the absurdly low end of the economic scale, I mean 29-1/2-hours-at-minimum-wage low end, almost everyone has at their disposal the means to make a better financial life for themselves, if they’re willing to make the sacrifices.
Fiscal baggage comes in a lot of forms. Sometimes the anchors holding people back financially come from within themselves; other times, as this article by Penny Wren at LearnVest points out, it’s the people closest to them. If you’re stuck with a spouse who doesn’t share your financial goals or can’t say no to indulging your kids, you will never be able to claw your way out of the pit.
Putting yourself on solid financial ground is not going to be easy; for many it’s the toughest road they’ll walk in their lifetimes. The path is hard — and here are the factors I see keeping people off the right track the most often.
Life is full of distractions and, particularly when the economy is good, no one really wants to hear about putting off vacations or big purchases, especially when you just got your first raise in five years at work. The kids need clothes, you need a new car, the refrigerator is too small; there are a million things that get in the way of doing the right thing. Yet the best time to make hay is when the grass is long, not during times of shortage.
Lack of Knowledge
Step one is learning. Go to the used book store and pick up a book on personal finance, or go to Amazon’s bookstore and download an ebook for less than a $1. Go online to sites like Mint.com and LearnVest; join online forums like Reddit’s /r/frugal. Don’t make any big changes right away, just start reading and build up a base of knowledge while you’re putting away $1,500 to $3,000 in an emergency fund. Knowledge and a small amount of cash savings are your first steps down the road to a better financial life.
Because people don’t live within their means and save money, they can never seem to dig themselves out of debt. During the recession that started in 2008, I thought there finally was a lesson about debt that would sink in with a new generation — but I was wrong. As the economy recovered and more people went back to work, consumer debt started climbing again within just a couple years. It’s glaringly clear by now that, as a nation, we learned nothing from the last near financial collapse. We keep making the same mistakes with debt while expecting a different result. Big financial disasters used to stay with the public consciousness for a generation — now it’s just a few years.
My mom’s view of the stock market is colored by a childhood where someone the family knew lost all their money in stocks. Luckily my dad manages their investments, and by making steady, patient, and sane investments, my parents now live a life of financial independence. Fear of the market and fear of investing keep millions of people and trillions of dollars on the sidelines. Fear motivates people to sell at the bottom of the market, and doesn’t fade until the market is overvalued, like it is today. Fear keeps money in bonds yielding 2.92% over 10 years and money market accounts paying 1.5%. Fear and panic are the two biggest killers of returns.
You Don’t Visualize Your Finances
How can you figure out where you’re going if you don’t know where you are? Being able to visualize yourself financially is hugely valuable. You’ll know where you are compared to other people your own age, and which path you need to follow to get to a better place. Learning to use Quickbooks, spreadsheets, and how to make simple graphs will pay off big time when it comes to learning how to manage your financial life.
You Have No Plan
The knowledge, sacrifice, and visualization won’t do you any good without knowing where you want to be in five years or ten. Anyone can give you the steps of the plan; learn, save, invest, chart your progress. Easy, right? But only you can shape those steps to your own unique situation. Only you can decide how much sacrifice you’re willing to take in pursuit of financial security. You need a plan — and stick it right on the refrigerator door so everyone can see it. That way, when you say no to this or that small indulgence, you’ll understand where that decision fits in the bigger scheme of your financial life.
I’d love to tell you there was a foolproof, easy method for achieving financial freedom, but I’d either be lying or trying to sell you something. So you can stay in denial and live in debt, or you can suck it up and start doing what works. It’s up to you.