“Into each life some rain must fall, some days must be dark and dreary.”  Henry Wadsworth Longfellow.

I love that Longfellow quote because it sums up one of the quintessential truths of life.  There will be unforeseen problems.  You can't avoid them.  But you can prepare for them.

Right now, however, Americans have the wrong idea of planning their budgets.  In my Bankruptcy practice, the majority of clients that I see have some sort of online brokerage account, such as Robin Hood, with $5 in it.  The opened those accounts with the best of intentions.  In fact, wealthy people have become celebrities in our society and it is not unusual to want to emulate them.

But the plain fact of the matter is that for most middle-class people true wealth accumulation will only happen with the purchase of real estate and long-term retirement planning.  Having said that people will still open that day trading account and burn $1,000 worth of savings under the mistaken belief that they can accumulate wealth the way that millionaires and billionaires do.

In the same breath, when their car breaks down, or they get injured on the job, or someone in the house gets sick, they turn to high interest credit cards to meet the gap.

This is where we have to break with the unrealistic attitudes, and start focusing on real strategies to keep your family from needing my services as a Bankruptcy attorney.

First…savings is a good thing, but its yields are so small that you should not expect your savings to be the vehicle to wealth accumulation (with one exception that we'll talk about in a minute).  Instead, your savings should be there to keep you afloat if there is (and there will be) an unforeseen emergency that is beyond what your monthly budget can handle.  That can be very frustrating…to build up a few thousand dollars, only to see it go away when your car breaks down.  What you have to keep in mind is that without those savings, you would be charging the repair on a credit card that is charging you between 20% - 30% interest, and therefore, from an investment standpoint, think of it as avoiding a 20%-30% loss.  You are actually ahead (if you avoided the credit cards) even though it doesn't feel like it.

Many people keep some canned food and bottled water in case of an emergency such as a power outage, or a big storm.  This is the same idea, but as it applies to your finances.  Save money, not to get wealthy, but to handle emergencies.

Now, for some people the emergencies never stop and they end up in my office looking at their Bankruptcy options.  Some people, however, have a string of good luck.  No major emergencies.  They are able to pay off their car loans.  They live within their means.

For those people the savings become a vehicle for wealth accumulation, because if you can save enough, you can use that money as a downpayment on real estate.  Real estate comes with its own problems, and it almost increases the need to save after you buy the house, because house-related emergencies (such as major repairs) are exponentially larger than normal household emergencies.  So the strategy remains the same (save for emergencies), only now you are engaged in wealth accumulation by having a large asset (your home) increase in equity and value over time.

So, unless you have several hundred thousand dollars to play with and an extremely competent financial advisor, avoid wasting your time and money in the stock market or in cryptocurrency.  Those markets only favor institutional investors.  Instead, save that money to avoid using high interest loans for unforeseen emergencies.  Live within your means and a realistic monthly budget.  Look for pitfalls in your expenditures (gambling, impulse buying, etc.) and try to avoid them.  Use cash instead of credit whenever possible, and if you have a long run without emergencies, use your savings for a down payment on a home.  That is how you will engage in true wealth accumulation.