When you were growing up, you probably had your mom and dad tell you that mistakes are meant to be learned from. This was probably said to you in relation to a test you failed or that girl you should have never started dating that keyed your car. What your parents never told you was that while you must learn from mistakes, they don’t necessarily have to be your own which is why, in this article, I want to share with you 5 money mistakes you must avoid at all costs!
Money Mistake #1: Spending To Impress Others
This first money mistake seems like an obvious mistake to avoid and while it is for some people, it can be tremendously hard for others. You see, we live in a world where the success of others is constantly pushed in our faces. Doesn’t it seem like every time you open up Facebook or Instagram you’re seeing your friend getting married while another is getting a new car? Heaven forbid you open up LinkedIn and see all the connections you have getting promoted while you dwindle in your current role for another year. When we are constantly bombarded by a sea of comparison, it’s hard not to feel down on ourselves. In fact, even when we know that Jim can’t even afford that new BMW he bought, we still feel inadequate when we compare it to what we have.
So what do many of us do when we feel this sense of inadequacy? We spend! We buy a new watch or outfit to show off to our friends, thinking that this will gain us some social cred, while overlooking the impact it has on our bank accounts. Now, don’t get me wrong, there are a ton of people who can afford to spend tons of money showing off but that’s not most people. Not to mention, spending to impress others isn’t healthy whether you’re rich or poor because it is a treadmill that once you get on you can’t stop.
The harsh truth of spending to impress others is twofold. First, most people can’t afford to spend money to show off. I’m sure you’ve heard the statistic that 78% of Americans live paycheck to paycheck which means that Betty, there’s absolutely no reason you should be spending $500 on a new handbag. I would argue that not only do these items come with a hefty price tag but there is a secondary cost to these purchases and that’s your mental well-being. Being strapped for cash can put a lot of stress on you and sorry but your new handbag won’t help you when you’re up at night figuring out how you’re going to make rent.
The second reason spending money to impress others is nonsensical is because the truth is no one actually gives a shit what you own. Actually, I take that back, there are people that will consume your attempts to show off but they are probably aren’t people you want praise from anyways. I doubt Elon Musk cares that you got the new IPhone the day after it came out. Your attempts to show off are only catching the eye of people who are trying to play the same show-off game as you are and these aren’t people that will get ahead. Therefore, this is a mistake to avoid without question.
Money Mistake #2: Not Investing ASAP
It seems like these days, everyone and their grandmother wants to get a piece of the action when it comes to the stock market. With stocks skyrocketing and making certain investors rich overnight, it’s no wonder why people would be interested. However, for every person that retires on a Tesla stock spike, there are thousands who buy high and end up losing money on their trade. The reality is that no one truly knows the price trajectory of any stock therefore in many cases, investing in this way is simply gambling. However, there is one investor that will get rich every single time and that’s the long-term investor.
Investing $500 a month for 40 years at a 7% return will yield over $1.3 million. Now, we don’t know what the true value of $1.3 million will be at that time but I’m guessing it will still be a nice nest egg to sit on. The trouble many people have with this concept is how long it will take them to achieve this level of wealth. There’s no doubt that 40 years is a long time and if you want to hit that seven figure mark then you need to allow for the time the money needs to grow.
Sadly, many people overlook investing in their early years. They are so pre-occupied with getting into and completing college, getting married and climbing the corporate ladder that they fail to put their money in motion by investing it. The worst part is that as long as you have disposable income to invest, this method of growing your wealth is braindead easy. In about an hour you can have an automated investing system set up with a robo-advisor. Once this is set up, the only thing left you have to do is wait out the 40 years until you’re a millionaire. But awareness is the issue and waiting too long to start investing is something I highly suggest you avoid!
Money Mistake #3: Relying Solely On A 9-5 Income
You go to school for years, get your degree and you’re then you find yourself in the midst of your career. This is how the first quarter-century of most people’s lives unfold and while being employed is a great way to earn income, the issue lies in how strongly it is relied upon by so many people. I believe so many people make their job their sole source of income for a couple of reasons.
First, many people have learned to dislike learning because of less than stellar experiences in school. It’s for this reason that when they think about using their precious free time after work to learn new skills that could make them money, they think it will be as treacherous as it was when in elementary or high school. Then, there are those who simply have no motivation to spend their free time to carve out another source of income. Maybe they’re too tired from being worked into the ground by their employer or they are too busy with family commitments. Finally, there are those that are Netflix junkies who have the time to devote to expanding their income but don’t because they lack an awareness of by what means they could do just that.
Unfortunately, all three of these people relying just on their job for income are one economic shift or slip up at work away from being financially destitute from an income perspective. Now, many of them I can’t even fault. In the past, many jobs could be relied upon for decades however the working world doesn’t exist in that reality anymore and relying solely on a 9 to 5 income is highly inadvisable. Even just adding one new source of income can not only increase your ability to save and invest but it will also ease the stress you may carry around the reliability of your current position. Therefore, look outside your cubicle for ways to make more money.
Money Mistake #4: Not Increasing Your Financial IQ
Financial IQ is broadly defined as knowledge about obtaining, saving and spending money wisely and the reality is that those with a lot of it become rich and those without it tend to stay poor. Given these results, it’s no wonder that it’s one of the five money mistakes you must avoid at all costs. Unfortunately for most people, they are never taught key principles of money. In fact, most people’s interactions with money simply come down to collecting a paycheck and sending out money to creditors every month. In reality, the possibilities with money extend much further than this small scope. However, you can only begin to unravel the possibilities when you begin to educate yourself in this domain.
So what opportunities am I talking about? Let’s dive into a few and then discuss what options you have for increasing your financial intelligence. In my eyes, having financial intelligence means that you can manipulate money in a way that benefits you and one way that you can do this is by hacking your debt. Sadly, millions of Americans are plagued by overwhelming debt obligations, many of which are of the credit card variety. This form of debt typically comes with APRs of over 15% which can turn that small purchase of yours into a big one if you fail to make your payments. The truth is that credit card companies continue to grow their profits because people are failing to make even the minimum payments which further increases their debt load. If only there was a way to reduce this burden! Well, if you invested time into your financial IQ, you would know that one smart approach to tackling debt is to pay off high-interest debt with lower interest debts. For instance, if you find yourself in a ton of credit card debt charging you 15% then why not take out a line of credit loan at 5% and save yourself the difference in interest?
Another instance where financial IQ comes in handy is when investing through an economic downturn. If uneducated, you may find yourself being one of the many people who sell off their stocks during a down period to salvage their portfolio value. However, the financially literate investor knows better than to do this. For example, if you had $1,000 invested in Apple during the 2008 recession and sold at a loss to salvage your investment then you would have been sorry because a decade later, that $1,000 investment would be worth almost $10,000. You see, wise investors know that over time, the stock market always stabilizes, and quality companies will persevere. Unfortunately, you need financial IQ to pull off this kind of move which if why failing to work on this area of your life is a huge mistake!
Money Mistake #5: Taking The Wrong Path In College
Which program you take in college can either be the best or worst decision of your life and sadly many people make the wrong mistake by ignoring the financial impact of their choice. Let’s call it like it is, some degrees have more earning potential than others which means that if you want to be able to pay off those student loans in a hurry and set yourself up for financial success then you need to choose wisely. However, it’s one thing for me to tell you this fact but it would be much better to show you exactly what I mean therefore let’s dive into an example comparing two college degrees. Degree number one sees you pursuing a degree in something like studio arts, which upon graduation, would yield you an average annual income of $42,000. Comparatively, pursuing a degree in the STEM field, where your career might see you working as an oil and gas engineer, would have you pulling in a cool $130,000.
This earning potential consideration is vital for two main reasons. The first is the obvious one that there’s a much larger ceiling for earning which means that there will be advancement opportunities in your field for which you’ll actually feel financially fulfilled. However, probably the biggest reason to be pursuing a degree with a higher income ceiling is that you’ll have the money to pay off your loans, leaving you more to then save and invest. Sadly, this is a fact that many young adults overlook when making their college program selection but it’s a financial burden that many people will carry for decades after graduating. Therefore, before signing over tens of thousands of dollars to any college or university, make sure that you not only assess which programs align to your areas of interest but what jobs will look like in that field, how much they will pay and whether there will even be any openings after you proudly walk across that graduation stage!