If you’re reading this, chances are that you just might have an interest in getting ahead financially. People generally don’t read personal finance blogs if they don’t care about money. Certainly, those run such blogs – like this one – are quite interested!
I’ve been thinking a bit about why it’s so hard for so many people to get ahead, or even to get to a point where they’re comfortable with finances. Personally, I’m working on this every day – diligently working toward being able to retire someday, while concurrently believing in responsibly living in the present as well. Quite the balance, sometimes! Yet, it’s not easy all the time for many folks.
When you think about it, the steps to seem quite basic:
Earn Money
Now, the current economic climate doesn’t make it easy to get work, much less the right work all the time. That being said, if one pursues and achieves obtaining a solid college education – and possibly graduate school – there should be a better chance for employment. It can be said that education and net worth might be correlated, in terms of level of education.
Beyond that, there is often money to be made when people are truly driven and motivated. Maybe not a dream job right away, but money can be earned if one is tenacious and really wants it. I wrote about persistency and wealth before, and think there is something to that concept.
Save Money
If we make money, then we should simply make sure that we save some of it. As long as we be sure to spend wisely, and discern wants from needs, we should be putting ourselves in position to save. The more we save, the closer we could be to retirement and financial security.
Invest Money
So, at this point, we’ve earned and saved. If we just keep money under the mattress, so to speak, it will lose value relative to inflation. If we keep pace with inflation, our money isn’t working for us. Thus, by understanding the importance of rate of return, we can begin to get our money to work for us. The long-term impact of just a few percentage points of rate of return can be quite impressive!
So why isn’t it automatic that everyone will succeed?
Bad Luck
For some people, there can genuinely be bad luck. I know that it might not be a popular notion among some personal finance bloggers, but I don’t think we can fully plan for everything. Sometimes there is an element of randomness that we can’t control. The notion of a crazy driver hitting us, totaling our car and causing injury, is something that can happen to anyone. Being prepared doesn’t matter. Also, we might get unforeseen health issues no matter how hard we try to keep healthy. All of these thing can be luck-related.
Wrong Approach to Education
No matter what statistics come out about the value of an education – along with common sense – there will be people who think it doesn’t matter. As in, “college is overrated”, or “college isn’t for me”, or “I know someone who’s doing great, and he didn’t go to college”. This is fully controllable, as long as we accept reality.
Also, sometimes people who do get a college education, and perhaps a graduate degree, might pursue a path that doesn’t pay off. Spending time on a major that doesn’t yield and marketable skills might not be the best approach. Additionally, choosing a school that is overpriced and causes one to take out excessive student loans can really set a person back financially. In such cases, it’s possible that getting that education might actually cause long-term problems, simply because of the cost.
Bad Debt
Someone could work hard, and have all the right intentions regarding saving and investing, but could be saddled with debt that must be paid off. I think a lot of this is letting emotions get in the way of making sound decisions. Sometimes a couple might “stretch” to buy a home they really love – after all, a home is a special place, right? Well, thinking clearly they would view it as a place to live and one that’s a financial liability in terms of mortgage, taxes, utilities, etc.
Beyond that, there are the obvious suspects, such as buying a car that’s too expensive, or simply piling up credit card debt for consumer purchases. Going into debt to buy things we really crave having, or feel entitled to based on a certain standard of living, doesn’t make sense. Yet, I think just one or two big mistakes along these lines could totally derail someone.
Life Mistakes
This category includes some things that might not always be a person’s fault, but sometimes life happens. People might choose a career path they genuinely hate, but do it anyway. Sometimes folks get divorced, which can wreck finances. Other times, people might do something reckless, such as text and drive or something silly like that which could cause them big problems via accidents. You get the idea – sometimes people might mean well, but simply either make mistakes or have life events happen to them.
Lack of Attention to Health
We’re not talking about unexpected things in this case. Here, we’re talking about health issues that could have been prevented or perhaps minimized, if a person took care of himself. Examples of smart choices along those lines would be maintain a healthy diet, getting exercise, understanding the importance of sleep, and managing stress.
If we aren’t healthy, our ability to make money could be impacted or – in some cases – even curtailed.
Bottom Line – While the steps to wealth can seem straightforward, it often takes more than simply working hard to make money, save it, and invest it. There are many decisions we make along the way with our lives that can either help us or get in the way of our efforts. I suspect that how we handle these other decisions that shape the structure of our lives will influence our ability to reach our financial goals.
My Questions for You
Do you think that it’s actually easier than people think to get ahead? Or, is it more difficult than meets the eye?
What factors do you think help drive financial success?
What factors do you think get in the way of people’s plans?
There are those whoa re really trying, saving, and investing but just doesn’t succeed. Still, I believe that with perseverance, it can be done. If you give up when you encounter errors, then you will never succeed.
Perseverance is key, I agree! It can separate successful efforts from failed efforts, and more.
It must be harder than we think because most families are having such a big problem with it. I guess the biggest problem is financial education. People just don’t understand how to save and invest. Bad luck and bad decisions probably go hand in hand too. If you’re prepared, bad luck is just a bump in the road. If you’re not, it can derail your whole life.
Joe – I think you’re on to something, so many people just don’t get the basics. Also, good point on being prepared for bad luck…it will happen, it’s just a matter of when and in what capacity. Being prepared for that uncertain certainty (if that makes sense) can help make it something that can be overcome.
I agree with all your point but in my opinion education is the key. Education keeps us as losers in the money game in so many ways: from messing up our finances to not being able to increase earning.
Maria – education is critical, no question about it!
HI there
As some one who’s made a few of these mistakes like borrowing student loans with enough knowledge or foresight; or even getting a divorce six years ago (dropped my household income by 70%) – you are absolutely right that it can be “harder” for some to get ahead financially than others.
I know that I’ve looked around at some of my younger PF blog colleagues and I get frustrated with the state of my financial situation. However, I then think about what it would have been like if I continued doing nothing for another ten years and then tried to recover from that mess. Thankfully, I’m only mid-career with a well-paying employer and I have the resources to turn things around.
A special last note about health, I just had a reminder of the importance of health a little while ago when my back decided to take a holiday from doing it’s job. What a wake up call!
Thanks for the post!
Lindsey
Things can happen to people, and well meaning, smart folks can end up facing obstacles. Some self-created, and others just put upon them through bad luck. Glad you’re in a position to get things on track after a few obstacles. It’s good fortune to be thankful for!
I think for majority of people who live paycheck-to-paycheck something as basic spending less than what you earn seems to be too confounding!
That combined with easy access to credit, makes it hard for people to save. Financial education should be made mandatory in schools!
MC – you’re probably right, it’s confounding for many plus there are too many temptations to spend. Education would help. Great points!
sometime it’s pure misfortune like bad economy taking away the job, act of god to lose everything to nature or even a bad illness …
SB – it can be any number of things. There is an element of luck to things, and we almost have to be able to respond or at least be resilient to bounce back if such things happen. If they can happen to others, they can happen to us.
My experience has been there are two huge factors that affect a person’s probability of becoming wealthy. Although anyone can do it (and everyone should), it becomes much harder for some than others.
1. Parenting – Others have talked about education and I think they are related. Since our society doesn’t provide financial education this comes from our parents. Some parents have much more experience and influence on their children. Some parents encourage their children to go to college and have the financial resources to make it happen. Most important, some parents set a sound example for their kids to follow.
2. Lifestyle Decisions – I am swiping this from Len Penzo, who has provided the best example I have ever seen. Len said people have the best chance for success if they do the following four things in order:
1. Go to College
2. Get a Job
3. Get Married
4. Have Children
I did them out of order and it definitely cost me. But, I was able to overcome it. Some people can be trapped in poverty for a lifetime from a teenage pregnancy or a struggle with drugs.
Bret – I think that you (and Len?) are on to something in terms of the sequence you described. There are people who can certainly overcome this, but the odds have to be strongly in favor of the person who follows the standard sequence. It takes a stronger than average person to break through!