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propensity to save

      3 Your appetite for risk

      4 Your willingness and ability to let your money compound

      5 The investment costs you absorb

      6 The taxes you pay.

      These factors are under your control. (Even the last one to a great extent, as I'll discuss in Chapter 13.)

Investment success is mainly about knowledge and personal accountability. It is only when we accept full responsibility for our choices and our actions that we take the giant step from childhood to adulthood.

      Yet many choose to embrace the psychology of helplessness and victimhood, preferring to explain all their struggles in terms of the actions of others.

      We often meet middle-aged men and women who are still grumbling about earlier unhappy experiences, who are still blaming their problems on other people or “the breaks.” They are angry with their parents, fuming at an old boss, still simmering over their ex-spouse. They are upset about the injustice of it.

      And you know what? They're right. Life isn't fair. There is no perfect justice. But fear, self-pity, envy, jealousy and anger hold us back, tie us down and suck the joy out of life.

      Management consultant Brian Tracy points out that there is a simple antidote to the factors that create these negative emotions. You need only say three words: I am responsible.

      Whether your problem is joblessness, addiction, overspending, obesity or poor finances, you move closer to a solution the moment you say “I am responsible.”

      It is impossible to say these words and still feel angry. The very act of taking responsibility short-circuits and cancels out negative emotions.

      Yet many would rather train for the Boston Marathon in 3 feet of snow than utter these words. Why? Psychologists say human beings have a natural propensity to accumulate pride and shun regret. In other words, we tend to take responsibility for the positive developments in our lives and attribute unfavorable developments to others or circumstances.

      This is not to say there aren't times when our lives are significantly influenced by outside forces. Maybe you are a great worker who lost your job due to corporate downsizing. Maybe your parents really were poor role models. But it is only when you choose to focus on what you can do and how you should act that you gain power.

      Today, businesses and other organizations are looking for people who are willing and able to think, who are self-directing and self-managing, who respond to problems proactively rather than merely waiting for someone else's solutions.

A study done in New York a few years ago found that people who ranked in the top 3% in every field had a special attitude that set them apart from average performers in their industries. What was it? They chose to view themselves as self-employed throughout their careers, no matter who signed their paychecks.

      These are people who set goals, make plans, measure progress and get results. Personal responsibility changes everything. It means you own your thoughts, impulses, feelings and actions. You are accountable for the consequences they bring and the impact they have on others.

      This is not a burden, incidentally. It's a privilege and an honor to take ownership of your actions. It creates freedom and control. It gives meaning to life. Self-reliance is the great source of personal power. We create ourselves, shape our identities and determine the course of our lives by what we are willing to take responsibility for.

THE RIGHT MINDSET

      If you want to do something about economic inequality in this country—especially as it relates to your own financial circumstances, the important thing is your mindset. How you handle your time, choices and money matters.

      Too many people in today's society have little understanding of how wealth is created—how more than 11 million American households generated a seven-figure net worth.

      These people optimized their education and marketable skills, maximized their incomes, lived within their means, saved regularly, invested smartly and let their money compound over a long period of time, generally decades.

      Most of us work, of course, but many who could save don't.

      Those who are physically or mentally disabled and cannot work deserve our sympathy and compassion. I support social welfare programs for the truly needy. But that cannot possibly describe most of us when the U.S. median household income was $68,703 in 2019.

Let's imagine that you and I are two hypothetical families earning exactly this median income—and watch how quickly our choices and habits change our economic circumstances.

      I'm a spendthrift. I blow every dollar I make each year. You, on the other hand, are a little bit more prudent. You spend almost everything you make, but regularly save 4% of your monthly income—$229 a month—through a Roth IRA.

      Let's further stipulate that you invest that money in a plain-vanilla S&P 500 index fund that generates nothing more or less than its average long-term return of 10%.

      After the first decade, with dividends reinvested, you have $47,300. I have zero. As you can see, things are already unequal. In 20 years, you have $175,345. (Finding $400 for an emergency is not a problem.) I have nothing. In 30 years, you have $521,966. I still have nada. And in less than 38 years, your $229 a month has turned into more than a million dollars.

      Plus, it's tax-free. (Let's recall that you were smart enough to invest in a Roth IRA where distributions are tax-exempt.)

      Some readers may not have 30 or 40 years to save and invest, of course. In that case, they need to save more or earn a higher rate of return … or both.

      Say, for example, rather than 4%, you saved 10% of that median income each month—or $572—and invested in the higher-returning Russell 2000 index of small cap stocks, which has returned 12% annually. You would have $132,898 in 10 years and more than a half-million dollars in 20 years. You would be a millionaire in less than 25 years.

      Amp up the savings or the returns and you'll be there quicker still. In short, it's your behavior rather than luck, fortune or “the breaks” that ultimately determines your financial well-being.

      This is how millions of ordinary Americans became millionaires. They weren't just lucky. They didn't inherit it. They had a plan. They stuck to it. And they reaped the rewards.

      With time and discipline, you can, too. But first you need to understand how major trends underway are creating incredible progress for most of us.

      REEL IT IN …

      1 Successful investors develop a prosperity mindset.

      2 The right habits and choices have allowed tens of millions of ordinary Americans to become wealthy.

      3 There are major trends—historical, political, cultural, technological and financial—that are making things better for most people in most places in most ways.

      4 Successful investors maintain a rational optimism about the future, especially when the nation or the world experiences short-term setbacks, as we always will from time to time.

      5 A coherent plan—and commitment to that plan—gives investors a high probability of achieving their most important financial goals.

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