The average American looks at investing as something only elite, wealthy people participate in. The reality, however, is that investing should be something that's available to the masses. In order for this to happen, you need a surplus in your household budget at the end of each month.
Why Don't Most Americans Invest?
The Dow Jones Industrial Average and other major U.S. indexes have seemingly set new record highs every few days for the year. This trend isn't having a direct impact on every American, though. According to The Chicago Tribune, just 54 percent of Americans are invested in the stock market – and the wealthy are far more likely to have their portfolios vested into it. While 89 percent of families with incomes over $100,000 have at least some money in the stock market, just 21 percent of households making $30,000 or less can say the same.
Why is it that only a fraction of Americans take investing seriously, despite the fact that history has proven it to be one of the most lucrative investments you can make over a 10-, 20-, or 40-year period? It comes down to three key factors:
- Fear. Americans who took a huge hit during the 2007 to 2009 stock market crash – as well as those who watched close friends and family members suffer – are fearful of something like this happening again. Even though the stock market has fully recovered and nearly doubled in value over the last nine years, there's an overwhelming sense of apprehension.
- Lack of patience. The American mentality says, "I want everything now." Because investing is a long-term play, many Americans refuse to participate. They'd rather enjoy short-term pleasures, as opposed to building long-term wealth.
- Lack of funds. The first two factors are issues of the mind and heart. This third issue is a practical problem – a money problem. Some people simply don't have money left over at the end of the month to invest. This is either the result of choice, or a horrendous financial situation.
Making Investing Practical for Your Family
Research and education will help you overcome the fear of investing, as well as any problems you have with patience. But when it comes to a lack of funds, you have to roll up your sleeves and get serious.
Here are some practical steps the average American can take to make investing a practical and useful tool for long-term wealth building.
- Develop a budget. Did you know that 78 percent of all working Americans live paycheck to paycheck? If you're stuck in this cycle of waiting on a paycheck to pay your bills, investing doesn't seem practical. It's time to build a budget and figure out your biggest problem areas.
- Slash expenses. When building a budget, you'll notice just how out of whack your expenses are. And if you're honest with yourself, you'll find ways to immediately shave hundreds of dollars off your expense sheet each month – which is enough to start investing.
- Increase income. If you're making $30,000 a year, investing is difficult. While you don't need a six or seven-figure salary to invest, it's always helpful to look for ways to increase your income. An extra $500 per month can provide a noteworthy boost to your efforts.
- Create a savings plan. If you struggle with patience and self-discipline, you have to learn to be in order to succeed. As your income increases and your expenses go down, you'll be left with a lot of extra cash in your bank account. Develop a plan to help you keep your hands off this cash until it's time to invest.
- Find guidance. Finally, you need some guidance on how to invest. Find someone who is transparent, honest and willing to educate you on the "why" and "how" behind investing. The more you know, the less risk you face.
Be Willing to Make Sacrifices
You won't get very far with investing if you aren't willing to make sacrifices. Embrace the fact that short-term sacrifices will lead to long-term gains and enjoyment. It's hard to see on the front end of investing, but it'll seem more attainable as your investments grow. Small strides now will yield significant dividends later.