Life is a journey. It's a roller coaster. You are reading this because you have financial goals and dreams. Whether that be to invest enough money to live off your investments, break your 9-5 or create a portfolio of wealth. During these times you are going to make mistakes.
And the BEST thing about making mistakes is the knowledge you gain. Making mistakes are apart of life and for people with a rich mindset they accept and love their mistakes as they see it as a growing point!
None the less there are some financial mistakes where it is best to avoid them rather than let them happen! So below I have chosen 5 financial mistakes you want to try to avoid in your lifetime.
1. Not investing!
Ask the majority of the older generation their biggest money mistake and they will say that they did not invest their money. Even ask middle aged investors or non investors and they will say their biggest mistake is not investing earlier! It really is a huge mistake to go through life not investing.
Not only do you miss out on financial relief by investing for the future but you also set yourself up better for retirement. I know its harsh to think but money can buy experience's (that being travel or adventures) and luxuries (like cars or that nice house) that you have always dreamt of, without money you will never be able to experience these things. Now I am not saying that investing will be able to give you this extravagant life, but it certainly will help.
However on a financially smarter approach by investing at a young age you are able to "reap the fruits of your labour."
This being if you are able to be disciplined in investing a certain amount of money each week or month and not withdraw it for long periods of time when you retire you should be able to reap these rewards.
For example how much more would you rather retire or even in your middle ages have invested enough to have generated a passive income of say $1k a week! Now this number is purely made up, you can invest and be able to passively earn a lot more! It just all depends on what seeds and how many you want to plant.
2. Choosing to live pay check to pay check
Now I hate talking about pay checks because I am assuming already that you (the reader) have a job of some degree and receive a weekly, fortnightly or monthly income. If you do have the luxury of having a regular pay check and find yourself spending all of it by the time next pay check comes around you have found yourself in our next money mistake to avoid.
Not only is living pay check to pay check adding stress to your life by having limited funds week by week but you run a huge risk. This being if you lose your only income you fall into a very dangerous trap. That being you are suddenly become unable to pay your daily expenses to live!
Now to claw yourself out of this mistake and trap is to get a hold of your expenses. Quite simply you need to bridge the gap between your income and your expenses. This means possibly limiting some of your unnecessary spending habits which I will discuss that further below
3. Buying that brand new car you don't really need
In general the two most expensive assets people own is a house and a car. Difference between them is a house appreciates in value whereas a car greatly depreciates. Yet the majority of people are not fussed paying large amounts of money for a brand new car they can't really afford. To then just see the value decline greatly within the first year of owning the car.
This is why buying a brand new car can be a huge financial mistake to avoid. Especially when people seek out a loan to finance the car. Because not only do they buy a new car with money they don't have but they then have to pay extra for that car (due to interest payments!) I personally don't like the idea of loaning money to buy something that depreciates so quickly let alone having to pay even more overall.
HOWEVER there are exceptions I must say out there and that being if you require a car for your job. Then the purchase of this asset is much more practical as it can be "making you money." There is also the idea of wanting to have a nice car to get you to and from places. And I respect this decision as driving a nice car or having this luxury for some people is one of their guilty pleasures they are happy to lose money in. I don't agree with that mindset but I respect it.
4. Not creating an emergency fund
Now most people don't regret or realise this is a mistake until it is way too late.
That being they need money and fast! The idea is that you create an account with a lump some of money that you only use in an absolute emergency.
The sum of the money you hold in that account is ultimately up to you. There is no right or wrong amount however there is a lot of opinions out there! The most common opinion is that you should create a fund with 6-12 months of your yearly expenses. Whereas some others say you should lock a few thousand dollars or a few months worth of your expenses. Obviously the bigger the emergency fund the less financial stress you can find yourself in.
The huge financial benefit that comes with building an emergency fund is the money that you save if an emergency occurs. That is for example say if you were to lose your job or become ill or unwell to work, what happens to your income?
So then how do you go about life paying bills and living?!?!? You begin to struggle and worse comes to worse you are forced to take out a loan or high interest credit card debt. And then you become stuck in an endless spiral or debt until you can find another income. I have not personally been in this situation but it sure as hell does not appeal to me hence I am actively building an emergency fund.
That is more of the severe cases where an emergency fund is beneficial. Another simple reason to build an emergency fund is for unpredictable costs that appear. That being if say your car breaks down, your fridge stops working ect ect. The list of life's possible problems can go on and on.
An emergency fund can be used if these unexpected costs appear and you have no cash on hand to pay for them.
5. Buying those luxury items for instant gratification (impulse buying)
Instant regret. I am sure there are some of you out there that have felt this. You see that nice new watch or that cool little gadget and think this is so cool I have to get it! You then buy it and get this rush of dopamine as something new has come into your life. A few days go by and the excitement of your new item is gone. You lose interest in it and then thats it! It starts collecting dust in the corner and you come to realise you have wasted your money.
Now this hard earned money is literally flushed down the drain. This is money you could be used for as above bridging the gap to not live pay check to pay check. Or freeing up extra money in order to make your money work for you! It is all about being smarter with your money.
To avoid falling into this trap you need to train your mindset. You need to learn to not seek instant gratification and falling victim to impulse purchasing. You have to train yourself to think only of your long term goals whether that be investing or saving up for something of value to you.
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