Want to Successfully Accumulate Wealth? Avoid These Common Money Mistakes

In 1996, marketing professors William Danko and Thomas Stanley co-authored the very successful book, "The Millionaire Next Door: Surprising Secrets of America's Wealthy". The information put forth in their bestseller caused millions of consumers to take a fresh look at what constitutes true wealth in America (and elsewhere).

One of the main ideas offered by Danko and Stanley is that people who look rich may not actually be rich at all. The U.S. has a consumer-driven economy which encourages people of all income levels to buy, buy, and then buy some more. In reality, many people who give the appearance of having enormous amounts of money really just have enormous amounts of debt. The authors found that actual millionaires tend to live in middle-class neighborhoods, drive modest, economical cars, don't wear flashy, expensive watches, and buy their clothes off the rack.

Having true financial security and being able to retire in comfort are two of the most sought-after financial goals people wish for. But unfortunately, many Americans will not accumulate the wealth they dream of. The never-ending quest for more material possessions- a bigger home, a fancier car, designer clothes and jewelry- is in direct conflict with sound financial planning and management.

The reasons why people are unable to accumulate real wealth throughout their lifetimes are as varied as the people themselves. But more often than not, it is a combination of the following common money mistakes which undercuts a person's ability to build sufficient wealth.

Money Mistakes to Avoid

If your dreams include being financially secure and having the ability to retire in comfort, avoiding the following money mistakes can help you make your dreams a reality. The most common obstacles to successful wealth-building are:

• Letting someone else control your money. If you are single, you should handle all of your financial matters directly. This includes carefully watching your bank accounts, paying all of your bills on time, and knowing all the day-to-day workings of your finances. If you have a spouse or partner, the financial burden should be shared. Each person needs to know the overall financial situation including investments, debts, retirement accounts, etc. If you use a broker or consultant for investment purposes, always stay on top of what is being done with your money and play an active role in investment decisions.
• Having a 30-year mortgage. This can be one of the greatest setbacks to accumulating wealth. On average, a homeowner will pay nearly 2 ½ times the purchase price of a home over the lifetime of a thirty year mortgage. That's an enormous amount of money spent over a long period of time that you can never recoup. While the monthly payments will be greater for a 15-year mortgage, a shorter term mortgage can help you save large amounts of money which can be used to build wealth.
• Having no financial goals. It's difficult to reach a destination if you have no idea how you're going to get there. Accumulating wealth doesn't happen overnight and it certainly doesn't happen without a solid plan. Financial experts recommend that you write down your goals and visualize them. A short-term goal may be saving for a fabulous vacation while your long-term goals may include a mortgage-free home and a comfortable retirement. Having specific goals will help you stay motivated.
• Not controlling your spending. Overwhelming debt generally occurs gradually- one poor financial decision at a time. Many people dribble away their money without even realizing what's happening. Small, unnecessary purchases add up over time and what were small losses suddenly become large ones. To be successful at accumulating wealth you must control your spending. This means having a workable budget in place and sticking to it. It also means knowing where your money is going. It is virtually impossible to build wealth without strictly controlling your spending.
• Having too much debt. The quickest way to derail your financial plans is to be in debt. The money you pay the credit card companies is money you're taking away from your savings- which lessens the chance of achieving your financial goals. If you want to start building real wealth, put away your credit cards and use cash for purchases. If you can't afford to pay cash for an item, the odds are you can't afford it period.
• Having no retirement fund or starting too late to save. There's no question that it's hard to think about retirement when you're in your 20s or 30s. But that's the absolute best time to start saving for retirement. The earlier you start getting in the habit of saving, the easier it will be to accumulate the funds you will need later on. Try to save 10 to 15% of your income, if possible. Take advantage of any contributions your employer may make towards retirement accounts.
• Cashing out retirement funds. The statistics are scary. Approximately half of American workers end up cashing out their 401(k) balances when they change jobs. Tax-deferred plans such as a 401(k) are a great way to accumulate wealth but only if you never tap these funds before you retire.

Finally, here are some additional financial lessons worth remembering from Thomas Stanley, the author mentioned at the beginning of this article.

• Income Does Not Equal Wealth. Statistics indicate that the size of the paycheck isn't as important as the amount of income that is invested. Millionaires, on average, invest almost 20% of their income.
• Pay Yourself First. This is an absolute must. Put money away each payday before you have a chance to spend it. Saving must be a priority, not an after-thought.
• Know Where Your Money Goes. This translates to having a budget and tracking your spending. Set aside time each and every day to check your bank account transactions as well as credit card balances.
• Stay In Your Current Home. According to the author, nothing impacts your wealth and consumption more than your choice of a house and neighborhood. People who live in million-dollar homes are not all millionaires. In fact, many are in serious financial trouble and are desperately trying to stay afloat. Surprisingly, nearly one-third of millionaires live in homes valued at $300,000 or less.
• Live Below Your Means. Learning to live on much less than your paycheck is a key component of accumulating wealth. First, it allows you to save more money. And secondly, it means that over the long haul you actually need to save less. Definitely a financial "win-win" situation!