Financial lack is a product of making financial mistakes over time. Our lives positions are determined by the quality of decisions that we make over time. This is also true for our financial position.
If you constantly make money mistakes, you become poor and lack. It does not matter how educated or intelligent a person is, the consequences of making these financial mistakes are the same for all.
This is what happens to the middle class. These are people who are intelligent and educated enough to get a good job but they lack financial intelligence.
They keep earning and not knowing what to do with what they get. This is why the struggle constantly financially even though they make a lot every month.
Such people have a house that they call an asset and a car that they keep upgrading every few months. The car keeps depreciating and consuming money for fuel and service.
The problem is not the car, the problem is that they bought the car on loan and they fuel it using their only source of income i.e their salary.
This is how most people live rich but are very poor. They have a dozen of liabilities that are milking them dry at the end of the month.
This does not have to be you. You can choose to walk in financial prudence. You might have lost much time committing these financial mistakes but you have time left to do the right thing.
Do not be like the middle class. If you have the intelligence to earn money, you can also multiply it and create wealth.
13 major financial mistakes
If you can avoid these common financial mistakes, you will forever overcome financial struggles. These are the worst financial mistake anyone can make. If you are serious about wealth creation, avoid them at all costs.
1. Lack of financial goals.
Setting goals is the first step to progress. Without goals, there will be no motivation to keep working. After all, you have nothing to work for.
Financial goals are crucial to financial success. Many poor people do not have financial goals or their goals are not big enough to motivate them to work hard.
Your financial goals should be SMART:
- Specific– They should not be ambiguous.
- Measurable– You should be able to measure progress with time.
- Attainable– Do not set goals that are impossible to achieve under your prevailing circumstances.
- Realistic– Your goals should be relevant to what you want to achieve and what you are undertaking.
- Time-bound– Make sure that your goals are set to be achieved within a specified time.
- I am earning 3000 dollars now but I will be earning 5000 dollars every month an year from now. This goal is SMART. It is very Specific, Measurable, Attainable, Relevant, and Time-Bound.
Setting goals is the foundational step of every success. Make sure you have SMART goals for your life.
Divide your goals into:
- Short term goals- A year or less.
- Intermediate goals- Between 1 year and 5 years.
- Long-term goals- More than 5 years.
With such goals, you are ready for financial progress.
2. Lack of financial knowledge
This is another major financial mistake that people make. They learn about everything else and never about money. This is why they know so much but they still struggle financially.
One may have a Ph.D. in Medicine or Engineering but if they lack basic financial knowledge, they will always struggle financially.
Financial intelligence involves understanding the three levels of making money. That is:
People who lack financial intelligence only know how to earn money by working in a job. They are poor at spending and even poorer in investing. This is why they struggle financially.
You can get financial intelligence by reading great financial books or blogs. I recommend Rich Dad Poor Dad by Robert Kiyosaki. This blog is also a good place to gain financial intelligence.
3. Spending more than you should
Many people spend more than is right. When they get income, they buy everything that they want and they are left with nothing to save and invest.
As they wait for the next income, they accumulate another list of wants. Once they get the income, they rush to the mall and satisfy their wants.
To avoid these:
- Only buy needs until you are financially free to buy wants.
- Make sure you have a budget.
- Automate your savings. Let the bank deduct part of your income into a fixed saving income even before you get the income. This is called paying yourself first.
- Get serious with your financial goals.
There is a 50:30:20 rule. 50% for needs, 30% for wants, and 20% savings.
This is a rule for the average person. As you become more serious with your financial goals, you will start saving and investing more and more. Many millionaires invest more than 70% of their income.
4. Buying liabilities from your salary
Never buy liabilities from your salary. Your salary should be used to cater for financial and investment needs.
Unless you want to work for someone else for the rest of your life, do not buy liabilities from your salary.
The problem with liabilities is that they keep demanding more money over time.
For example, a personal car will keep demanding fuel for the rest of its life. This will ensure that you have nothing to fund your financial growth at the end of the month.
Use your salary to invest and then use the proceeds from your investment to acquire liabilities.
5. Consuming what you do not have
Many people consume everything they have and even what they do not have. This means that they borrow to finance their consumption habits.
I have seen many people who borrow to do birthday or wedding ceremonies. Others borrow to purchase a new sofa set. This is a big financial mistake.
This is called consuming your future. You are eating what you are supposed to get in the future. It dooms your financial future and keeps you in constant financial struggles for the rest of your life.
6. Buying more liabilities than assets
If your liabilities consume more than your assets bring you, you will go broke. If your business brings you 1000 dollars per month but your car and house consume 1200 dollars every month, you will go bankrupt.
Accumulate more assets than liabilities and make sure that you get more from your assets than your liabilities consume.
7. Not having multiple sources of income (MSIs)
This is one of the worst financial mistakes people make. Many people just rely on one source of income for survival.
When they lose that source of income, they become beggars. This is not financial prudence.
I am always astonished by people who only bank on their jobs for financial provision. This is financial suicide. Such people go into depression when they are retrenched by the companies they work for.
If you are serious with your financial life, make sure you invest in the following:
- Business/ businesses.
- Real estate.
- Stocks/ bonds.
- Precious metals.
At least, have 3 of the above. When one industry is down, the rest will keep you afloat.
8. Increasing your spending when income increases
This is a common financial wrong. It is called the Rat Race. The spending is always chasing income. When the income increases, the spending also increases.
In the Rat Race, there is never money for savings and investment. The increase in income is never beneficial. It does not help your financial position. In most cases, it just makes you more comfortable and not better off financially.
This is what is holding many people back. They go to the streets to have a pay raise but when they get it, they only buy a bigger car rather than increase their investment portfolio.
At the end of their working life, they will have a junk of liabilities and a very poor financial position.
9. Not taking financial risks
Greater financial risks lead to higher financial rewards. This is undisputed.
If you are not ready to take great financial risks, you are not ready to get great financial rewards.
Since many people are not ready to take financial risks, they would rather not invest. They hoard their money in banks. This money will be eaten away by inflation over time. Other than making them better financially, it makes them poorer.
When you get a great opportunity, make the move. Put in the resources and learn as much as you can. With knowledge, risks are greatly diminished.
10. Investing in get-rich-quick schemes
Many people do not want to put the required financial effort to make money. This is why they are usually looking for an opportunity to make millions with the least effort and time.
As they do so, they invest in fraudulent investment schemes that promise them so much using very little. They put everything they have in it and lose all of it.
In investment, when a deal is too good, think twice. Most probably, someone wants to take your money. When it is too good to be true, it probably is not.
Always do your due diligence and trust your instincts. Do not be greedy for gain and believe everything people tell you.
As Warren Buffet says, be paranoid when others are greedy and greedy when others are paranoid.
11. Not borrowing to invest
This is also a great money mistake. Borrowing is part of financial growth. No one can grow without debt; at least not fast enough.
When you have an asset that brings you cash, say a business, you will need to grow it. At this point, you can get a loan to finance the growth.
Observe the following rules when getting into debt:
- Borrow only what you need.
- Invest everything you borrow; avoid consuming from the debt.
- Do not borrow just because someone else is ready to lend.
- Always negotiate the terms of the debt. I.E the interest rate, repayment period, type of loan, etc.
- Invest in a project with an ROI that is higher than the rate of interest of the loan.
If you can properly manage debt for growth, you can easily gain financial abundance.
12. Not calculating ROI when investing
ROI stands Return of Investment. It is calculated by dividing the return (Profit) by the investment (Capital invested). The higher the ROI, the better.
When making any investment, make sure to calculate the ROI. If you have two potential projects that you are comparing, calculating ROI is a must.
In most cases, it will not be clear how much you will get from a certain investment. This is where financial forecasts come in. This are educated guesses based on data from the industry and the prevailing conditions.
13. Not giving money
Giving is a great financial principle of abundance. This is not just a spiritual principle but a financial one too.
When you give, you are communicating with your mind that you are not poor. When the mind holds on to that notion, the law of attraction will set in.
The law of attraction states that we attract into our lives what we think about most of the time. If you think that you are poor, you will attract poverty. The vice versa is also true.
This is a rule I purposed to follow and it does not fail.
The following are important when giving:
- Give when you are not ready; do not wait to have excesses for you to give. Give even when you are running on a deficit.
- Give out of gratitude. The best way to do this is to give where you are nourished.
- Expect to receive after giving. This faith will bring financial resources to you.
In all you do, make sure you become a giver.
Final thoughts on financial mistakes
If you can avoid these financial mistakes, you will be on your way to financial abundance. It does not matter how old you are or your status in society, if you make financial mistakes, you will reduce your financial wellbeing.
Let’s recap. These are the 13 common money mistakes everyone should avoid:
- Lack of financial goals.
- Lack of financial knowledge.
- Spending more than you should.
- Buying liabilities using your salary.
- Consuming what you do not have.
- Buying more liabilities than assets.
- Not having multiple sources of income (MSIs).
- Increasing your spending when your income increases.
- Not taking financial risks.
- Investing in get-rich-quick schemes.
- Not borrowing to invest.
- Not calculating ROI when investing.
- Failure to give money.
All the best as you work on your financial goals. Get the life you desire.
Founder/ C.E.O- Wealthy Wolves Consulting & Giimark Ltd/ Best-selling Author/ Speaker.