The 3 Factors That Set Financially Successful People Apart from Those Who Struggle

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Ever wonder what it really takes to become wealthy?

Assuming you don’t have a very rich relative who leaves you a lot of cash or you’re not on track to be the next Silicon Valley tech startup wunderkind, then you’re probably taking the same path most of the rest of us take:

  1. Earn a strong income (and seek to increase it throughout your 20s, 30s, and 40s before your salary will likely hit a plateau in your 50s)
  2. Spend far less than you earn, and save the difference
  3. Invest some of that savings wisely and strategically

Yes, there’s more detail involved, but that 3-step process describes the major actions you need to take. If you follow this, you can be wealthy.

So why are so few people achieving financially success?

Not everyone thinks and therefore acts in the same way around money. And sure, everyone’s circumstances are always a little different from the next person.

But there are a few things most people who are financially successful — those who turned a good income into increasing net worth through savings and investments — tend to have in common.

Here are 3 of those factors that set the financially successful apart from other folks who seem financially stuck.

They’re Proactive, Not Reactive

Perhaps the most important financially successful factor? Proactivity.

People who are proactive with their finances tend to create, build, and keep more wealth than people who merely react to things after they’ve already happened.

People who struggle with money, even after earning good incomes, do so because they don’t plan; they don’t think ahead; they don’t consider where they want to be in 5 years so they never start making the necessary moves today that will position them for what they want tomorrow.

Those who are proactive, however, do plan. They strategize. They take time to dream about the future and work backward from there to get to the action steps they have to take now to make such dreams into realities.

Here are some examples of what that proactivity might look like in action. Financially successful people tend to…

  • Set up emergency funds to prepare for unexpected expenses. They might not know exactly what they’ll use the money for, but they know it’s reasonable to assume things will go wrong (or just not according to plan) and that might require some extra cash to cover.
  • Create room in their cash flow for savings. Even if retirement is a long way away — or they don’t even want to “retire” in the traditional sense — they know that one day working to earn a paycheck won’t be an option (whether by choice, necessity, or trend, like aging out of the workforce). Therefore, they proactively free up cash each month to put away for the long-term by spending less than they make.
  • Fund goals, even when they don’t know what the specific goal is. It’s crazy to expect you’ll know exactly what you’ll want for you life in 30 years — much less knowing exactly what you’ll want in the next 10, or even 5. But financially successful people understand no matter where they’ll end up, they’ll need some amount of money to underwrite their goals or lifestyle. So they proactively save and invest to build wealth, even when they don’t have specific goals.

They Think Positively, Not Negatively

Did you know your circumstances only account for about 10% of the influences that determine how you’ll react or feel about a situation you find yourself in?

For example, if you suddenly lose your job, the actual event of losing the job only exerts about a 10% influence over how your react to it or feel about it.

About 50% of our reactions are up to genetics — so if you’re naturally inclined to feeling negative or unhappy, which some people are, you might have to work harder than the next person to find the silver lining in an unpleasant circumstance.

But a full 40% of your reaction is up to you. You control it. You decide how you feel, how you react, and how you respond. That gives you a lot of power in deciding how your life goes.

I learned about this breakdown in The Geometry of Wealth by Brian Portnoy. It reminded me of another factor that sets financially successful people apart from people who find themselves struggling:

People who are successful think positively. When something “bad” happens to them, they tend to choose to respond in a positive and productive way rather than in a negative or self-defeating way.

This isn’t just a platitude; optimism really does seem to play a role in the success of entrepreneurs, leaders, and wealthy individuals. Check out some of these articles on the subject:

When you keep an optimistic outlook, you’re primed to look for opportunities. When you keep yourself down in the dumps, it’s hard to see anything but doom and gloom ahead.

There’s actually a scientific reason for this. It’s called the Baader-Meinhof phenomenon (or as more commonly called, the frequency or recency illusion).

Once you think about or notice something, your brain tends to pay more attention to that thing and therefore thinks or notices more of the same than it did before — even though the likelihood or amount of that thing never actually changed.

The common example of this in action is if you go to buy a certain make, model, and color of car. Suddenly you see that same car everywhere. But it’s not because the cars increased in number; it’s just that your brain became primed to notice them (since you bought one yourself).

Apply this to your financial life. If you prime your brain to notice positive signs, opportunities, and good habits, guess what your brain pays attention to? More of the same.

The opposite, however, is also true. Think negatively and assume the worst, and your brain will respond by giving you more negative, worst-case scenario thoughts.

PS: If “think positively” doesn’t resonate with you, try this: reframe weakness or negativity.

This doesn’t have to be all rainbows and butterflies and fluffy thoughts. Use whatever phrasing works to get to the point: this is about a mindset shift; a change in how you perceive what happens to you.

They Ask Questions, Not Assume the Answers

The third important factor that tends to set most financially successful people apart from people who struggle with money? It’s the tendency of successful people to ask questions.

They don’t assume they have all the answers. Yes, they’re smart, motivated, and capable — but they’re also self-aware enough to understand they don’t know everything.

People aren’t just naturally “good with money.” Anyone who is financially savvy wasn’t just born that way. They learned. They experienced. They asked, and they listened.

Admitting you don’t know something or feel uncertain isn’t a weakness. In fact, it’s overconfidence in your own knowledge and all your assumptions about what you know that will land you in trouble.

Acknowledging what you don’t know, and even acknowledging there are some things you don’t know you don’t know, is powerful. It puts you in a place to actually find the real answersinstead of acting on false assumptions, incomplete information, or bad advice.

Simply asking for clarification can do wonders for your financial trajectory.

Asking for help, advice, or guidance could mean the difference between a massive, costly mistake and getting on the right path early to maximize your potential.

And small gains — getting one little thing right — grow exponentially over time. James Clear explains the idea of these marginal gains, explaining that you’ll progress farther if you simply focus on making incremental progress (rather than trying to knock it out of the park once).

Financially successful people don’t just assume they’re doing all the little stuff right and only worry about their money when it’s a big deal. They constantly ask, “how can I make this small tweak and become 1% better?”

Ask, don’t assume. And while you’re at it, think ahead. Be proactive. And stay positive.

They’re all good step to take if you want to build your own financial success.

Myth: “Financial Advisors Are For Rich Old White People”

FACT: Beyond Your Hammock believes financial advice should be for you when you’re young and crushing it in your career — but before you’re wealthy so you can actually make the right moves to grow your net worth now. Here’s what else we believe financial planning should do differently for people like you.

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#FinancialPlanner helping 30 & 40-somethings build #wealth & think differently about #money • Top #FinancialAdvisor in #Boston •

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