Seven Major Obstacles to Financial Success from the Quiet Millionaire

October 29, 2007

One of the most important steps towards building wealth is learning what NOT to do.  If you can avoid the biggest pitfalls then you have a much better chance of being successful.

As I read through the Quiet Millionaire I ran across a list of things that can be damaging to our personal finances.  I’ve given my take on each one:

1) Undisciplined Spending
Discipline is not a fun word; a lot of times we associate it with the opposite of fun.  However, the truth is that being disciplined doesn’t mean you can’t have fun.  It really just means you have to do a little more planning for your fun and be able to find ways to have fun that don’t cost so much.

2) Materialistic Thinking
Being happy is not about what you own but rather what you look forward to.  Take this sentence for example:

“I can’t wait to drive my Mercedes to our $1 million home, catch an episode of “The Office” on our $2000 TV, and then enjoy dinner with my wife at our $1000 dining room table.”

Now compare that to this sentence:

“I can’t wait to drive home, catch an episode of “The Office”, and then enjoy dinner with my wife”.

Does it really matter whether it’s a Mercedes, a $1 million dollar home, an expensive TV, or high end dining room table?  What is it that you’re really looking forward to, that’s what matters the most.

3) Burdensome Costly Debt
Everyone wants to be in charge of their own future.  How can you be in charge of your own life when you owe everything to debtors?  Not only will debt prevent you from building wealth, it can also prevent you from building a life.

4) Taxes
This is a tricky one.  We have to pay taxes but they definitely eat away at the amount we have to spend now or invest for the future.  Tax planning to minimize or defer the amount of taxes you pay can give you more money to work with.

5) Inflation
This obstacle is a sneaky one.  Since you never have to write a check or pay a bill to inflation it’s easy to forget that it exists. The Quiet Millionaire refers to it as the “silent erosion of wealth and purchasing power”. You should factor the effect of inflation into all of your long-term financial planning and calculations.

6) Poorly Structured Investment Portfolios
“Undiversified investments possessing an unjustifiable amount of risk relative to the potential for reward.” The simplest way to overcome this obstacle is to put your money in index funds across the spectrum of asset classes. We met with a certified financial planner to help us evaluate our current investments and choose the best index funds for us.

7) Unforeseen Life-Changing, Financially Devastating Events
This is the scariest obstacle to me since a lot of it is largely out of our control. The book gives examples of things like medical expenses, divorce, job loss, disability, death, and law suits.  You can work to prevent some of these but the best defense is to insure against them so you have some help if and when they do occur.

Ben

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Ben

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn’t like the other kids… His addiction to personal finance has paid off for his family and now he’s helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.


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