10 Reasons You Will Never Be a Millionaire
Kiplinger
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Wealthy people usually aren't born that way. Most spend their lives amassing their fortunes by working hard, spending little, saving a lot and investing wisely. It may sound like a simple strategy, but the fact that the vast majority of Americans fall short of millionaire status proves that it's easier said than done.
Then again, 10.4 million households in the U.S. have $1 million or more in investable assets, according to market research and consulting firm Spectrem Group, and their ranks are growing. So it's not impossible.
Read on to learn what you might be doing to keep yourself out of the millionaire's club. More importantly, find out how you can change your ways and build your own seven-figure nest egg.
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Accumulating wealth starts with your first paycheck, and some jobs can get you going faster than others. According to consulting firm Capgemini's World Wealth Report, many wealthy people today work in technology, finance and medicine—fields that are well represented in our list of the best jobs for the future. Positions in these areas have generous salaries and are in high demand. For example, among our top jobs is nurse practitioner, which has a median salary of more than $97,000 a year. In contrast, a door-to-door sales worker, among our worst jobs for the future, can expect to make about $20,700 a year. Of course, given enough time and the right saving and spending habits, you can build a fortune even with a small salary. But a higher income can certainly make it easier to save more, faster.
What you can do about it
If you're still in school, majoring in a promising field can put you on the path to a lucrative career and help make you a millionaire. But remember: You'll have an easier time working hard for the rest of your life if you have a legitimate interest in your chosen profession.
If you're past your college days, you can still learn some skills to advance your career and increase your earning potential with free online courses. Also consider supplementing your income: see 30 Ways to Earn Extra Cash.
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Cash stuffed under your mattress or even deposited in a savings account won't keep up with inflation, much less grow into $1 million. In order to maximize your gains, you need to invest your money wisely. In many cases, that means putting your money mostly in stocks.
Consider the math: According to Bankrate.com, the highest yield you can expect from a money market account right now is 1.26%. If you put away $10,000 in one and added nothing else, in 10 years, with monthly compounding, you'd have about $11,340 total. But if you invested that $10,000 and earned a 6% return, you'd have almost $18,200, or $6,860 more.
What you can do about it
There's no denying that the stock market can take you on a bumpy ride, so your fears are understandable. But steeling yourself and diving in is well worth it. Over the long term, stocks have marched upward and proved to be the investment of choice for expanding wealth.
Savings earmarked for retirement are particularly well suited for the stock market. With a long time horizon, you have time to recover from market dips.
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If you don't save money, you're never going to be rich. It's hard to get around that obvious (but often ignored) principle. Even if you earn seven figures, if you spend it all, you still net zero.
What you can do about it
Begin saving as soon as possible. The sooner you start putting your money to work, the less you actually have to save. If you start saving at age 35, you'll need to put away $671 each month in order to reach $1 million by the time you turn 65, assuming you earn an 8% annual return. If you wait until you're 45 years old to start saving, you'll have to save $1,698 a month to hit $1 million in 20 years.
How can you start saving? First, you need a budget (more on budgeting later). Lay out all of your expenses to see where your money is going. Then, you can figure out where you can trim costs and save. Any little bit you can muster is a good start. And whenever you get a bonus or some extra cash—for example, after selling some belongings or getting a generous birthday gift—add it to your savings before you have time to think of ways you can spend it.
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Spending more than you earn can put you in a dangerous hole of debt. On the bright side, you won't be in there alone: According to the National Foundation for Credit Counseling, one in three American households carries credit card debt from month to month. And among those balance-caryying households, the average credit-card debt is $16,048, according to financial research firm ValuePenguin.
What you can do about it
Again, you need to have a budget to make sure you have more money coming in than going out. With the availability of credit, it's easy to fall into thinking you can afford more than you actually can. But, as Knight Kiplinger has pointed out, "the biggest barrier to becoming rich is living like you're rich before you are."
Even once you are rich, you may still want to live like you're not. According to U.S. Trust's Insights on Wealth and Worth survey, the majority of millionaires don't actually consider themselves "wealthy." If you don't think of yourself as well off, and you maintain the same lifestyle after your income and savings increase, you can put away even more for your short- and long-term goals without losing an ounce of comfort.
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No, we're not suggesting that you search for loose change under your sofa cushions. Rather, cutting seemingly insignificant expenses—such as baggage charges on your flights, late-payment penalties on your bills and out-of-network ATM fees on your cash withdrawals—can add up to substantial savings.
Investing fees attached to mutual funds and 401(k) plans can be especially detrimental. For example, let's assume you currently have $25,000 saved in your 401(k) and earn 7% a year, on average. If you pay fees and expenses of 0.5% a year, your account would grow to $227,000 after 35 years. But increasing the extra charges to 1.5% annually would mean your account would grow to just $163,000 over that time.
What you can do about it
More than you realize. Pay attention to the fine print, and avoid those sneaky extra charges. You can skip airline baggage fees by packing lightly and bringing only a carry-on or by flying Southwest Airlines, which allows you to check two bags free. If you make a late payment on a credit card, ask the issuer to waive the fee. Long-time customers who usually pay on time are often given a pass. For more, see How to Avoid Paying 21 Annoying Fees.
For your 401(k), you can see how it rates with other plans at www.brightscope.com. You can select low-cost mutual funds to lower your investing costs. (Check out the Kiplinger 25, a list of our favorite no-load funds.) Also consider talking to your employer about the possibility of lowering the plan's fees.
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