Most people, if asked, would say they would prefer being rich to struggling financially. But, how many people actually think they’ll be wealthy in their lifetime? And what are they doing to make that belief a reality? To find out, GOBankingRates asked more than 500 Americans various questions about what it means to be “rich” in America.
Americans Are Confident They’ll Be Rich — But Their Finances Say Otherwise
In the survey, respondents were asked to rate their confidence in becoming rich someday on a scale of 1 to 5. Although 25 percent of people said they are “very confident” they will be rich one day, it seems that many respondents are not taking steps toward reaching that goal. When asked, “Of the following, which steps have you taken to achieve your definition of rich?” 26 percent of respondents admitted they have not taken any steps — whatever they might be.
Meanwhile, 22 percent have focused on building relationships with friends and family, and 20 percent have paid off debt. Thirteen percent said they made savings goals more of a priority, and 11 percent are investing in order to try to reach their goal. Just 8 percent have increased their annual earnings in their quest to become rich.
Many Americans Lack the Savings and Investments Needed to Grow Their Wealth
In the survey, more than one-third of all respondents said being rich is “being able to afford the life you want” — but 33 percent of these respondents aren’t doing what’s needed to afford the life they want.
Recent GOBankingRates research sheds light on Americans’ struggle with building wealth. For example, a survey found that 58 percent of Americans have less than $1,000 in a savings account — and 26 percent have no savings at all. Furthermore, 42 percent of Americans have less than $10,000 in retirement savings. And, over 40 percent of Americans say they are not investing their money.
It seems most Americans are not yet prepared to afford the life they want. But, there could be many reasons why people lack the savings and investments needed to build wealth.
RELATED: Take a look some of the biggest pieces of financial advice you can't afford to ignore:
13 pieces of money advice you can't afford to ignore
13 pieces of money advice you can't afford to ignore
1. Pay yourself first
"People still don't grasp the fact that they need to save a dime out of every dollar," author and self-made millionaire David Bach told Business Insider in a Facebook Live interview. He said the average American who's saving money is saving just 15 minutes a day of their income, when they should be saving an hour.
Bach noted troubling research from the Federal Reserve that revealed nearly half of Americans wouldn't have enough money on hand to cover a $400 emergency. Yet, he continued, millions of those people will buy a coffee at Starbucks today and expect to buy the new $800 iPhone next year. Americans have money, he says, but we aren't saving it.
So get on the "pay-yourself-first plan," as Bach calls it, and automatically save an hour a day of your income. "When that money is moved before you can touch it, that's how real wealth is built," he said.
2. Beware of lifestyle creep
There's a lot of pressure in your 20s and 30s to keep up with your friends. Maybe they're buying a nicer car or a house, but if you're not in the financial position to keep up, don't try.
"I always refer to it as 'lifestyle creep' because one of the big things that people can do — that's an advantage to them — is keep their fixed expenses somewhat stable and reasonable for what they make," Katie Brewer, a Dallas-based certified financial planner who founded Your Richest Life, told Business Insider.
Planning for your recurring costs — like mortgage, rent, a car payment, and insurance — ensures that expenses won't creep up on you and derail your financial future. Of course, Brewer said, if you're making good money you should have the freedom to spend it how you wish, as long as your lifestyle doesn't overtake your income.
In short: Live below your means.
3. Take advantage of an employer-sponsored 401(k)
Putting money into a retirement plan as early as you can, no matter the amount, is a smart and easy way to pay yourself first.
If your company offers a 401(k) plan, take advantage of it. In some cases, employers will offer a contribution match. "That means the company contributes a set amount — say, 50 cents for a dollar — for every dollar you contribute up to a specified percentage of your salary," Beth Kobliner writes in her book "Get a Financial Life: Personal Finance In Your Twenties and Thirties."
"That's free money, equivalent to a 50% or 100% return. There's nowhere you can beat this!" she writes.
Plus, 401(k)s allow you to contribute your pre-tax money, meaning the more you contribute now, the greater the growth (thanks, compound interest) and the more money you'll have down the road, though you will be taxed when you withdraw the money for retirement. For 2017, the maximum contribution to a 401(k) is $18,000.
4. Invest in the stock market, just don't try to time it
"No one can time the market, so know that if there is a decline, it's going to bounce back. Over time, being in the market pays off more so than staying out of it," Michael Solari, a certified financial planner with Solari Financial Planning, told Business Insider.
Sometimes known as "set it and forget it" investments, these diversified funds automatically adjust their asset allocation and risk exposure based on your age and retirement horizon. Early on, when the need for that money is still a couple decades away, the fund will adopt a more growth-focused strategy. As you ripen toward retirement, it dials back the risk.
You may not get the average annual return of 11% in your target date fund — given you'll be invested in a blend of stocks, bonds, and alternative assets — but if you get even 6% per year, an original $10,000 investment will be worth more than $32,000 in 20 years without you having to do a single thing. Compare that with $12,200 in your high-yield savings account or $10,020.20 in your traditional savings account.
kid put coin to piggy bank on the vintage wood background, a saving money for future education concept and copy space for input text.
5. Build an emergency fund
Let's face it: It's really not a matter of if you'll need to fork over cash for a car or home repair, child expense, or medical emergency, but a matter of when.
"No matter how well you plan or how positively you think, there are always things out of your control that can go wrong," Bach writes in his bestseller "The Automatic Millionaire."
"People lose their jobs, their health, their spouses. The economy can go sour, the stock market can drop, businesses can go bankrupt. Circumstances change. If there's anything you can count on, it's that life is filled with unexpected changes," he wrote.
Most financial planners suggest stockpiling anywhere from three to nine months worth of expenses in an emergency fund that you can turn to when in need. If you don't have savings at the ready, you run the risk of having to rely on family or friends for help, or worse, falling into debt.
6. Pay off your credit card balance in full every month
Sometimes a credit card can feel like free money, until you're slapped with the bill. Even then, most credit cards only require you to pay 1% to 3% of your balance each month, which can be an alluring prospect if your budget is tight. But consistently paying the minimum could cost you a fortune in the long run, damage your credit score, and affect your ability to qualify for a mortgage.
Not only did she swipe her credit card with no reservations and adopt the bad habit of paying just the minimum amount — Torabi said she once forgot to pay the bill all together.
She remembered incurring a late fee that showed up on her credit report and gave her a true "wake-up call." The incident happened before she "realized the power of automating" her bills, a practice that can save you money on late fees and relinquish you from remembering due dates and the embarrassment of missing a payment.
Though you're "never going to kill your financial future" by accumulating money, Brewer says, "you're losing out on opportunity costs by having money sitting around ... especially if it's sitting in an account making barely anything in interest."
If you're risk-averse, one way to manage savings overflow is to move your money into a high-yield savings account, where you could be earning 1% interest on your money, rather than the 0.01% earned in a traditional savings account. Or, as previously mentioned, stick it in a low-cost target date fund and see your returns balloon over time, with little to no work required.
8. Have more than one credit card
It may seem financially reckless to have a wallet full of credit cards, but it's actually smart. According to John Ulzheimer, credit expert at CreditSesame.com, having a single credit card can damage your credit score, thanks to something called your credit utilization ratio — that is, how much of your available credit you're actually using.
"That percentage is very, very influential in your credit score," explains Ulzheimer. "People say that you're in good shape if you keep your utilization within 50% of your available credit, or 30%, but really, it should be below 10%."
Available credit counts all the cards you have: If you have one card with an $8,000 limit and one with a $6,000 limit, your total available credit is $14,000, even if you only spend $1,000 a month. With a single card, you have no unused credit cushioning the impact of your spending. The closer you get to your limit, the harder the hit on your credit score.
"Say you have $5,000 of credit card debt at an 18% interest rate. Say you happen upon $5,000 of money. If you take some of the advice out there, and split the use of that $5,000 (half to establish an emergency fund, half to pay down credit card debt), you still have $2,500 of credit card debt and $2,500 of money sitting in cash.
"The $2,500 of credit card debt at an 18% interest rate costs you $450 a year. The emergency fund earns almost nothing in interest. So you're out $450."
Bottom line: You'll save more paying off the debt than you'd earn if you invested it, whether in a high-yield savings account or the stock market.
10. Always be insured
Every American citizen is required to have health insurance, or be fined hundreds of dollars by the IRS each year. Kobliner advises signing up for insurance should be "your No. 1 financial priority" because it'll protect you from unforeseen accidents or illness, and prevent yourself or your family from going bankrupt in the case of an emergency.
If your employer offers health insurance, take it, Kobliner says. It's almost always cheaper than buying a policy on your own (but keep in mind that you can be covered by your parent's insurance until age 26). Before signing up, though, make sure you understand the cost and extent of the plan, including your deductible, or how much you'll be paying out-of-pocket before insurance takes over.
If you do end up needing to purchase a policy on your own, head over to healthcare.gov to compare plans and pricing.
11. Track your spending
Business Insider's Libby Kane has written, edited, and read hundreds, maybe thousands, of stories about money during her career, and says she's learned that "the best, most critical first step you can take to improve your finances is to track your spending."
Keeping tabs on where your money is going, whether fixed expenses like rent or mortgage payments and transportation costs or discretionary spending like dining out and travel, is a crucial part of mastering your money.
"Whether you owe money to the tax man at the end of the year or not, it's always a smart move to file your taxes," Kobliner advises.
And be aware that you can save money on taxes by taking advantage of deductions, or the specific expenses you're allowed to take out of your income before calculating your owed taxes. The standard deduction — $6,300 for singles and $12,600 for couples — is a good place to start, Kobliner says.
You can also itemize deductions to maximize your savings by listing specific deductions, including expenses for housing costs like mortgage interest or property taxes, and charitable donations, or making use of tax credits.
And if you don't file your taxes? You could pay a penalty fee of at least $135, plus interest on the money you owe, and lose ground on your credit report, among a host of other financial consequences.
13. Be patient
When bestselling author and motivational speaker Tony Robbins asked billionaire Warren Buffett a few years ago, "What made you the wealthiest man in the world?" Buffett replied, "Three things: Living in America for the great opportunities, having good genes so I lived a long time, and compound interest."
"The biggest thing about making money is time," the investor, who's now worth more than $76 billion, said in a recent HBO documentary about his life. "You don't have to be particularly smart, you just have to be patient."
In his latest letter to Berkshire Hathaway shareholders, Buffett announced that he was on his way to winning a $1 million bet he made in 2007 that his investment in an S&P 500 index fund would outperform five hedge funds over a decade.
Discover More Like This
BACK TO SLIDE
“For some, it might be because they truly are living paycheck to paycheck and can’t get ahead financially,” said Cameron Huddleston, a personal finance expert and GOBankingRates’ Life + Money columnist. “For others, as much as they say they want to be rich, they’re not making saving for the future a priority and are spending their money to live in the moment instead. Unfortunately, for many Americans, they’ve never received a good financial education — in school or at home — so they don’t know what steps they should be taking to achieve their definition of ‘rich.'”
The results from GOBankingRates’ 2018 Annual Savings Survey seem to confirm Huddleston’s insights. In the survey, respondents listed the following reasons why they’re unable to save more money each month:
31 percent said they’re living paycheck to paycheck
23 percent said they have a low salary
18 percent said they have a high cost of living
14 percent said they have too much debt
When it comes to investing, more than half of non-investors — 55 percent — said the primary reason they’re not investing is because they don’t have enough money, according to a separate GOBankingRates survey. And, when asked what would need to happen for them to start investing, 43 percent of respondents said they would also need to have less debt.
Steps You Need to Take to Grow Your Wealth
If you’re one of the 33 percent of respondents who haven’t taken any steps to afford the life you want, Huddleston recommends taking these steps to grow your wealth:
Pay off credit card debt. If you have high-interest consumer debt such as credit card debt, make a plan to pay it off. Once you’ve eliminated those monthly debt payments, you’ll free up more money to set aside in savings or to invest in income-producing assets such as real estate.
Make more money. Look for ways to increase your income by negotiating a raise or getting a second job. Then, invest the additional income.
Control your spending. Resist the urge to spend on unnecessary items by asking yourself every time you make a purchase whether it will move you closer or farther away from your goal of being rich.
Get help. Hire a financial planner to help you create a plan to make the most of your money.
Paying off debt and saving money are important ways to build wealth, but a key component seems to be missing from most Americans’ plans to be rich. Investing was cited by just 11 percent of respondents. Putting your money to work for you — including tapping into the power of compound interest — is one of the the most effective ways to increase your wealth and eventually afford the life you want.
Although many survey respondents aren’t taking the necessary steps to build wealth, it’s important to note that a good portion of respondents don’t think wealth is solely related to monetary gain.
In fact, the second-most popular definition of wealth was “living a happy life no matter how much money you earn,” which was chosen by 30 percent of people. Nineteen percent said being rich is about “having meaningful relationships with friends and family.” Ten percent define it as “having a large nest egg or savings reserved for the future,” and only 4 percent define being rich as “earning a lot of money through your job.”
Age and Gender Insights: Women and Older Americans More Likely to Say Being ‘Rich’ Isn’t About the Money
“Being able to afford the life you want” was the top answer for both genders and nearly every age group, with 46 percent of those aged 18 to 24 and 45 percent of those 25 to 34 choosing this answer. Respondents who were 45 to 54 years old selected “living a happy life no matter how much money you earn” as their top answer at 42 percent; 31 percent chose with “being able to afford the life you want.”
Nearly half of the survey respondents said that being “rich” isn’t about the money at all. Thirty percent said that you are rich if you “live a happy life no matter how much money you earn.” Nineteen percent said that being wealthy means “having meaningful relationships with friends and family.” The age group that most strongly feels this sentiment is the 45-to-54 age group, with 61 percent of respondents choosing these two answer choices. The age group least likely to choose either option was 25- to 34-year-olds.
Women are also slightly more likely than men to say that being rich doesn’t relate to money, with 51 percent choosing these options versus only 46 percent of men.
Sadly, 61 percent of all survey respondents do not currently consider themselves to be “rich,” according to their own definition of the term. However, that doesn’t have to be you. You can start today to take the steps you need to live a richer life.