The 3 Inter-related Secrets of Wealth
You might be surprised to learn three inter-related behaviors actually predict the amount of wealth you will accumulate in your lifetime. If you intend to create wealth or prosperity in the future, you should pay close attention to these three core behaviors to maximize your chances of success.
Wealth Secret #1: Set Financial Goals
The number one reason people don’t achieve their goals is they are unsure of what it is they want. According to reliableplant.com, only 20% of us bother to set any life goals at all, which means that 80% of us are on the “see how it goes plan.” Those who bother to set financial goals were 2.5 times more likely to monetarily succeed (saveloy.com.)
Wealth is something you must actively choose as an outcome, otherwise you won’t have the focus to bring that desire into reality. Without financial goals, even if you unexpectedly received a large sum of money, you likely could not hold on to it. For example, those who were lucky enough to win a huge lottery prize did not keep their wealth for very long. A study of Florida winners showed that 70% spent all the money they won within 5 years of winning a jackpot.
There is a lot more to financial goal setting than simply saying, “OK then, I want to be wealthy.” It is vital that you understand “why” you want financial abundance—which is your motivation to achieve a goal. Why is this goal important to you? Without significant motivation, you end up just ignoring any goal you create. Setting goals should be a transformational process that guides your efforts, energy and daily habits into a new direction that achieves specific outcomes.
Wealth Secret #2: Increase Your Self-Esteem
Your feelings of self-worth are closely tied to the story you tell yourself about who you are, what you believe and what you think you are worth. Self-esteem is directly related to how you were raised and the story you internalized about yourself during your childhood. A study at the University of Georgia demonstrated that higher self-esteem is closely linked to higher net worth and a larger household investment portfolio. Also, The Journal of Economic Psychology produced a study that closely linked self-esteem with financial planning and goal setting. Those with higher self-esteem engaged in these three behaviors while those who were low in self-esteem did not.
Finally a study at the University of Southern Maine by Dr. Derek Tharp demonstrated that people with low self-esteem lacked the confidence needed to believe they could successfully financially plan or achieve their financial goals. So they typically expended little effort in those areas.
Wealth Secret #3: Increase Your Knowledge
Self-education is a critical component of building wealth. We must understand what to do and when to do it in order to successfully build an investment portfolio, maintain it and then grow it. To learn these important strategies, most people are left entirely to their own devices. The willingness to engage in self-education is closely related to both goal setting/motivation and higher self-esteem (“Developing, Monitoring and Reporting On Personal Goals”). The willingness to take on the challenging tasks of educating themselves requires a certain amount of “self-efficacy” or the inner belief they can succeed at the tasks of learning, planning and goal achievement.
A study published in the Journal of Economic Psychology, called “The Significance Of Self-Efficacy In Explaining Women’s Personal Finance Behavior,” indicated that women who have higher financial literacy also possessed greater self-confidence, lower debt and a higher net worth.
Finally, the International Journal of Economics and Financial Issues conducted a study and determined that financial literacy is not only closely related to self-confidence (self-efficacy), but also the ability to set and obtain personal financial goals. The study also indicates an increase in motivation (a factor in goal setting) leads to increased confidence and knowledge. Success in any one of these areas has also been shown to increase others.
We can conclude with the premise that a high net worth (All Assets - All Liabilities) is a behavior based outcome. Your net worth today is actually the sum total of all your behaviors up to this particular point in time. Behavioral finance shows us that if you have high motivation with accompanying goals you will also have a greater drive to succeed, which means you have a greater belief in your own abilities and a greater willingness to educate yourself about important personal finance issues. There is every reason to believe that if you can increase one of the three attributes, it will increase the others as well. Embrace your goals, increase your self-esteem and educate yourself about these important behaviors needed to build wealth.