In the financial world we live in today, getting ahead is hard. From rising costs to stagnating wages, every day is a battle. Unfortunately, a lot of people are bringing a knife to this gun fight and are acting as their own worst enemy by succumbing to certain detrimental habits, of which 3 are the most precarious. If you’re feeling like getting ahead with your money is unnecessarily difficult right now then make sure you’re not making any of the mistakes I’m going to go over right now!
Mistake #1: Chasing Quick Wins
Whether you realize it or not, building wealth is a war of attrition. Those who can stay in the game the longest win and those who suffer from short-sightedness lose. It’s really that simple. If you don’t believe me, take Jeff Bezos as an example. No one expected an internet based business that sold books to turn into one of the most transformative businesses the world has ever seen but here we are. However, we only got to this point because Jeff Bezos had a vision and was willing to invest decades of his life into making his dream a reality. Notice what word I just used there? Decades. Not a week, a couple of months or even a year. Decades.
Now, I am no Jeff Bezos but I know that in my own pursuit for more wealth, the longer I have remained consistent in my efforts, the more success I have enjoyed. In fact, two situations come to mind when I think about how playing the long-game has helped me win in my own financial journey. The first pertains to my journey through post-secondary education.
You see, while most people have the goal of getting in and out of college as quickly as possible, I never got that memo and spent roughly 7 years pursuing my own academic pursuits. For instance, instead of getting a 4-year degree like most of my peers, I went to college, got a diploma, did a Bachelor’s and Master’s degree and obtained my CPA and CIA designation. Now, I am not saying this to brag — being a student after 25 isn’t exactly going to score you points with the ladies (or your mom who you’re probably still living with if you take this route).
I am merely saying this because hanging in there to win long-term when everyone else quits early has allowed me to now have a distinct advantage compared to my peers. While my friends struggle to get promoted, or even get a job in many cases, I’ve never had that problem because of my educational background. The truth is that while others sought out the path of least resistance by getting in and out of school as quickly as possible, I was thinking long-term and as such pursued more education than most people. I can say that even though that education path took years off my life, literally and metaphorically, I’ve been able to bear more fruit than my peers as a result.
My second foray into playing the long-game to win financially pertains to my YouTube journey. In 2019, I started an animated finance channel on YouTube called Betterment Boss. After seeing many channels blow up and make tens of thousands of dollars a month, I knew I wanted to get in on that action. As such, I started a 3-year (and counting) grind on what I would say is by far the hardest platform to grow on. I’ll admit that I wanted to quit about 100 times during that first year. There are only so many times you can stomach seeing a video you worked on for 10 hours get 4 total views (thanks Mom and Dad!). Fortunately, I am more stubborn than I am wise so I kept at it and now the channel makes me over $100,000 a year — which if you told me 3 years ago I would never believe.
If you’ve been following these two stories closely, you’ll realize the common theme — winning takes time. Unfortunately, we live in a world where we want everything now. If you ask me, this has been perpetuated by the world of instant food, instant messaging and same-day delivery that we live in today. Simply put, we aren’t set up to cultivate the trait of patience.
Sadly, this “need it now” mentality is the first common trait most, if not all, broke people have. They want quick wins in their investments or they want to become rich by next year. From my own experience and the experiences of those around me, what comes quick, goes quick or never even comes at all. For instance, look at how many people tried to strike it rich with Dogecoin or GameStop stock. Sure, some people did make off like bandits if they got in early, however most people ended up buying well above the normalized price, putting their portfolio in the red for perpetuity.
Now, you may be wondering why broke people gravitate to quick win situations and I think it boils down to two main reasons. First, broke people want quick wins because they simply can’t afford to play the long-game. If they don’t make money right away then whatever endeavour they are taking on won’t be feasible for them. I see this all the time with my YouTube clients. Those who can afford to take things slow end up seeing the most results but those who are hoping that YouTube will be the be-all and end-all to their financial problems burn out fast and never see a penny back from their efforts. In my own YouTube journey, I didn’t make a single cent for over 2 years and if I was going for quick wins I would have never gotten to where I am today. However, it takes money to afford to have this longer-term mindset which is, if you ask me, the biggest problem broke people have.
The second reason broke people like quick wins is that quick wins are all they know. Given that they are already broke, they’ve probably only ever made short-term decisions up until this point in their life. This could be choosing to spend every last dime from their paychecks, to passing on post-secondary education or simply spending every non-working hour they have binge watching Netflix.
I will leave this first mistake at this: Nothing worth having comes easy and a little bit of patience goes a long way, especially when it comes to your money.
Mistake #2: Over-rewarding Themselves
Do you remember when you used to bring home your straight A report card and your mom would treat you to extra gaming time or your favorite dessert? Well, I don’t because I wasn’t a straight A student but I am sure some other students were making their moms proud with their marks and were being rewarded handsomely for their good efforts.
Needless to say, for most people, when we achieve good things in life, we are rewarded for it. For instance, if you lose 50lbs you’ll probably gain praise from those around you. If you have a child, you’ll have your house filling up with baby gifts. We’ve been conditioned to connect our positive results to rewards and while this could mean a cute outfit for your newborn, it could also mean putting yourself into dire financial straits and I’ll explain why that is now.
You see, as humans, we rarely like to do things that don’t yield results. Like I just said in the last example, we wouldn’t diet if it didn’t lead to looking better in the mirror. Alternatively, we wouldn’t be clocking into our jobs every day if we weren’t collecting a paycheck every two weeks. Simply put, we need rewards to prompt certain behaviors. Now, when used responsibly, rewards are a very powerful behavioral tool but when they are taken to the extreme they can literally cripple any chance you have of getting ahead financially. One prime example of this is what’s known as lifestyle inflation or lifestyle creep. This financial phenomenon takes place when someone’s standard of living or lifestyle costs rise as they make more income.
For example, when you were making $50,000 a year, you were living in a one-bedroom apartment and taking the bus to work. Over time, as your income has risen, you now have a single home to yourself and drive a brand new car. It’s the simple principle of more money in, more money out and feeling like you should be constantly rewarding yourself for your career or income advancements.
Unfortunately, this mindset is a one-way ticket to perpetual penury and will plague you regardless of the size of your paychecks. In fact, a recent study by the companies PYMNTS and LendingClub found that 53% of millennials making over $100,000 a year were living paycheck to paycheck which goes to show that making a decent income isn’t a foolproof strategy for living a good financial life.
So how do we solve this overspending issue? It comes down to one word: balance. I’m happy to announce that you can have your cake and eat it too when it comes to making and enjoying your money. Here’s the approach I share with people who want to avoid the plague that is lifestyle inflation. Whenever you see a rise in your income, use the 10% rule. The 10% rule implies that you can spend up to 10% of your increase in income any way you want. Here’s an example of how this would work in practice.
Let’s say that you get a promotion at work that increases your income from $50,000 to $60,000 a year. Your total increase in income is $10,000 which means that when employing the 10% rule you could spend up to $1,000 guilt free. This rule takes into account the fact that the increase in income is before tax and still leads you to saving and hopefully investing the majority of this extra money while still enjoying some of the fruits of your labour in the short-term.
In case you were wondering, this rule can be applied to any increases in income from raises, promotions, windfalls or any additional streams of income you may have. The main goal here is to use the bulk of your income to progress financially in the long-term while keeping your motivation high in the present by enjoying some short-term gratification as well!
Mistake #3: Being Financially Blind
Have you ever heard the saying, “you can’t see the forest for the trees”. Well, for 29 years of my life, which is the entirety of it so far, I thought the saying went “you can’t see the forest from the trees” which to me made no sense because I mean the forest is right in front of you just open your damn eyes.
Now, I can’t be one to judge because obviously I couldn’t even get the saying right for many years but when I came to realize the essence of this saying, it really opened my eyes to one of the biggest issues broke people experience on a day to day basis.
If you’re unfamiliar, the saying “can’t see the forest for the trees” means that you’re so involved in a situation that you can’t see the bigger picture. This is the experience that most broke people are in when it comes to their finances.
You see, the life of someone who struggles financially is based in a perpetual cycle of what I call the double A matrix: Action and Anxiety. For one, they are always in a state of constant action which typically comes in the form of work. Most broke individuals work two or more jobs because their income and spending habits require them to remain constantly busy. Then, there’s anxiety. When they aren’t working, they’re worrying about maintaining those income streams that are barely allowing them to get by. Hence the Double A matrix that many broke people find themselves in.
Unfortunately, when you’re in the Double A matrix, you’re so consumed with what’s right in front of you, such as completing your work shift or not being overwhelmed by your emotions, that you can’t see the bigger picture. This bigger picture is your financial roadmap. Most broke people are focused on the street names and traffic lights instead of seeing the grander city map and this is holding them back tremendously.
Now, I will be the first to admit that when you’re always one missed paycheck away from losing your house or being evicted it’s not easy to see life from a zoomed out perspective, however it’s vital to do so if you want to avoid being broke forever.
This is why no matter what financial state you’re in, it’s imperative to take time to review your finances on a regular basis. I call them money dates, mainly because I can tell my friends I go on dates when they ask how my dating life is going, but you should be allocating time every week to reviewing your current financial position.
By doing so, you can assess whether that debt balance that’s been hanging over your head is actually going down or whether your efforts to cut out expensive coffees is working or whether you’ve just replaced that expense with going out to eat more instead. Alternatively, you can determine if your current income plan of working three jobs at minimum wage is going to allow you to live the lifestyle you want when your life priorities shift as you age. All of these financial, and overall life, decisions can only be tackled when you make time to assess your situation, tweak things as needed and ensure that you remain on the right path to achieving all your financial goals.
Fortunately, if you can avoid chasing quick wins, can manage your spending and ensure that you make deliberate financial decisions, being financially destitute doesn’t have to be a reality you have to partake in!