Our lives are littered with financial regrets of should haves and shouldn’t haves.
- Should have quit that job sooner
- Shouldn’t have bought the black convertible
- Should have saved that $800 bonus
- Shouldn’t have bought Enron stock
- Should have bought these stupid shoes
- Shouldn’t have had an open bar at the wedding
You have a few, right?
The good news is those are all minor mistakes in the grand scheme of your life. There are only four big money mistakes that will derail your financial future. If you can recognize and avoid these mistakes, you’re golden.
Mistake #1: Spending more than you make
Most of us have or have had debt at some point in our lives:
- student loans
- credit card debt
- car loans
- medical bills
Some of those debts you have more control over than others. You can control the kind of car you buy, how big your home/apartment is, what non-necessities you buy, etc.
The key point is having control over your money instead of it controlling you.
When you carry a balance on your credit cards, you can’t get ahead.
When you have a mortgage, that eats up 50% of your take home pay you can’t get ahead.
When you’re car loan eats up your paycheck, you can’t get ahead.
You have to decide you want to get ahead!
Spending less than you earn is a key wealth builder.
You can break the habit of spending more than you make by getting out of debt in 4 simple steps.
Mistake #2: Not investing
Who is going to take care of you when you retire? You are.
And what’s the best way to do that? By automatically investing a portion of your income each month in the stock market. The stock market over time is the best way to grow your money with the least amount of work from you. Your money is put to work, and its only job is to make more money.
The power of compound interest was described by Einstein as the greatest mathematical discovery of all time.
The earlier you start investing, the more money you’ll have when you retire. Investing isn’t scary and doesn’t require a lot of money to get started.
Mistake #3: Not educating yourself
Don’t believe anything any self-proclaimed financial expert tells you to (that includes me!).
That goes for the financial planner who manages $300 million in other people’s money to the top rated radio talk-show and TV show hosts.
The smartest decision you can make in your life is to take what you hear and then research to verify the claims are true or false.
Some people provide great advice and service in some areas of personal finance and terrible advice in other areas. An example is a financial planner that knows a lot about investing but doesn’t have a lot of experience in rental homes (because they don’t own any). I’d look for another source of information before buying your first rental home.
And there are well-known radio and TV personalities with such die-hard loyal followers, listeners don’t even bother to do any research.
They say ‘You should invest with ABC company’.
You say ‘He was right about the insurance he told me to buy, so I’m going to invest with ABC company too.’
If you blindly follow advice from experts without doing your research, you’re going to be robbed of thousands to tens-of-thousands over your lifetime. Think I’m kidding? See how just this one simple issue can cripple your retirement.
Mistake #4: Making emotional decisions
It’s very hard not to get caught up in the emotional rollercoaster of money. We are emotional creatures after all.
It’s those very emotions that lead us to make pretty much all the stupid money decisions we’ll ever make. Right?
Think about some bad money decisions you made in the past. If you had written down the pros and cons on a piece of paper and weighed them out carefully, would your decision have been the same or different?
Different, but we don’t do that.
We get excited when we shouldn’t and buy the next big thing.
We get worried when we shouldn’t and sell our investments when they are worth the least amount.
It’s going to happen. The key is to recognize the situation and try to use your head instead of your heart. Take a day to think on your decision. Or a week. Or a month. Ask for some advice (email me at firstname.lastname@example.org – I’ll help you). Do some research.
Confide in trusted third-party that will give it to you straight:
Is this a wise choice?
Once you get some info then make your decision. It will more likely be the better one.