Hello readers! In today’s blog, we’ll discuss five reasons why most American families never build wealth and fail to get rich.
Reason #1: Investing in Real Estate and the money traps
We are all very attached to real estate. Now, I’m not saying you shouldn’t buy real estate. I’ve always lived in rented houses, so I understand the value of owning your own home. It’s not just a financial decision; it’s an emotional one, and that deserves respect.
So, I’m not against buying real estate, but I’m critical of the assumptions we make about it. When we buy a flat, we think we’ve invested in real estate. However, the true component of real estate is the land itself. The rest is an experience.
When you purchase a flat, only a small portion of your money actually goes toward the land. The rest goes into amenities, the building’s prestige, the address, the landmark status of the property, the society, and the facilities—which are not “real” in the true sense of real estate.
For instance, if you buy a flat for $115,000, check how much square footage of land you actually get and then compare it to the local land prices. It’s possible that in a $115,000 flat, only $25,000–$35,000 is the actual land value. The remaining $80,000–$90,000 is spent on lifestyle, safety, security, and enjoyment, which don’t necessarily appreciate in value.
People often assume that if a flat costs $115,000 today, its value will grow to $575,000 in 20 years. But in reality, it might only rise to $345,000. The appreciation comes mainly from the land, while the rest of the investment—$25,000 to $35,000—depreciates because newer, better buildings, societies, and amenities emerge.
So, I’m not saying you shouldn’t buy a flat; just keep in mind that your investment may not fully appreciate. Only the land value is likely to increase, while other components will depreciate over time. Plan your future net worth growth accordingly.
Reason #2: Not Investing Enough in Mutual Funds and Stocks
Many of us watch a few financial videos, invest a bit in mutual funds, and feel financially aware. But in reality, we are not.
If you’re not allocating a substantial portion of your net worth to equities, your money isn’t going to grow as it should. For example, let’s say your total net worth is $100,000. You own a car, a flat, and some other assets, but you invest only $2,000 in stocks or mutual funds. Then you claim you’ve “learned” that mutual funds are the right choice or that you’re financially aware.
If you don’t invest meaningfully in fast-appreciating assets like equities, especially when you’re young or middle-aged, you won’t build significant wealth by the time you reach the end of your working life.
Simply investing in mutual funds isn’t enough—you need to invest substantially, especially when you’re young. This is crucial.
Reason #3: Paying Medical Expenses Out of Pocket
If you’re paying a significant portion of your medical expenses out of pocket, that money comes directly from your financial planning reserves.
We are aware of basic life and health insurance, but there are many medical expenses we could insure against to reduce out-of-pocket costs. Unfortunately, we don’t know enough about these options.
Reason #4: Retiring Early
This problem is growing rapidly today. The idea of financial independence and early retirement (FIRE) has become very popular, but it seems a bit dangerous to me.
Many people aggressively try to retire early, often compromising their present lifestyle significantly to escape work as soon as possible. However, you need to realise that by doing this, you’re sacrificing the best years of your life.
This approach can lead to a lot of stress in the present. While planning for the future is good, stressing yourself out excessively in the present is not.
Reason #5: Not Prioritising Your Own Growth
This is the most important reason. Once we start earning, we focus on keeping our parents, family, friends, and partners happy. In the process, we forget to prioritise ourselves.
As a result, we lag behind in wealth creation. Being emotional is a wonderful quality—as long as it doesn’t interfere with your personal growth and goals.
These are the key reasons why many families struggle to build wealth. Be mindful of them as you plan your financial journey!
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