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10 Money Mistakes Successful People Don’t Make

10 Money Mistakes Successful People Don’t Make

Managing money effectively is a key success skill. Successful people make the decision to become effective with money, many of them early in life. Like any area of life, it is important to educate yourself about the threats and challenges in the world. Taking the time to master a few key principles will pay off for years to come.

1. They don’t overspend; they live on less than they make.

Living on less than you make is an essential money management skill. Some of the world’s wealthiest people have taken this principle to heart. For example, Sir John Templeton, a legendary investor who became a billionaire, saved 50% of his income even when he grew up with limited means. If that is more than you manage, don’t worry! You can reach financial success by saving 10-15% of your income.

Tip: Learning to live on less than you earn takes time. Start by looking for ways to save money: 55 Practical Ways To Save Money Efficiently.

2. They don’t fixate on price; they understand the importance of value.

The price you pay for an investment, a meal or piece of clothing is only part of the story. Successful people also think about the value of that good. For investments, they consider the prospects for the investment growing in the future. For personal items, they look for high quality products that will last. For example, a well made pair of business shoes may cost $200 or more but these shoes can last for years with proper care.

Tip: Buy high quality products that will last for a long time.

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3. They don’t waste cash on fees and interest; they know how to manage their banking

Carrying a balance on your credit card is incredibly expensive and sadly common. According to CNN, the average American household carried over $15,000 in credit card debt. Successful people also keep an eye on their bank fees–how much they pay for ATM use and other transactions. These fees are easy to avoid with planning once you understand how the system works. Simply reviewing your financial accounts for 5-10 minutes each month is all it takes to understand your fees.

Discover: 7 Essential Ways To Avoid Unnecessary Bank Charges.

4. They don’t forget to adjust their finances after big changes in life.

Did you get married recently? Is your spouse referenced in your will? These are some of the points that financially successful people manage effectively. While you can automate a great deal of your finances, it is vital to make adjustments when your life and family circumstances change significantly. Sitting down by yourself (or with a financial expert) at least once a year to review your life and financial plan is an excellent way to stay on top of important changes.

Learn: Arrange your finances for the long term with estate planning.

5. They are not satisfied with a stagnant income; they look for ways to increase their income.

Some people never ask for more money or simply settle for 1-3% increases. Unfortunately, that rate of income growth means you are simply standing still–inflation is slowly eating away at your purchasing power. Instead, successful people look for ways to earn more income. Increased income gives you more options for personal enjoyment, more capacity to give money, and a sense of security.

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Successful people take daily action to increase their income. For example, they take a course to improve their skills or they contribute ideas to improve the productivity of their companies. They also know how to ask for more money.

Tip: Do yourself a favor and learn about high paying fields: earn $100,000 in project management and discover the highest paid jobs in America.

6. They don’t ignore financial statements.

Reaching financial success requires some slow and steady habits. That includes forming a habit to monitor your financial statements. Successful people set a time each month–30 to 60 minutes–to review all of their financial accounts: investments, bank accounts, credit cards and more. When they detect an error or omission, they take immediate action.

Tip: Set a recurring reminder in your calendar each month to review your financial accounts.

7. They don’t take foolish risks in money.

Warren Buffet is often quoted as saying, “Rule number one is never lose money.” All investments carry some measure of risk (and therefore the potential to lose money). That said, successful people use two powerful tools to avoid losses. They understand the value of insurance to control risk (e.g. home, auto, and life insurance) and the importance of asset allocation.

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Remember: If it sounds too good to be true (or if you don’t understand how it works), slow down and start asking plenty of questions.

8. They don’t pretend to understand everything when it comes to money.

The world is a vast and complex place–successful people know and deeply understand this truth. When it comes to money, there is a lot of information out there. That’s why successful people like Warren Buffet understand their limits and focus on their strengths.

Tip: Review your knowledge of money and investments. If you are just starting out, read one or two classic personal finance books. Or read 9 Can’t-Miss Secrets Behind Warren Buffett’s Wealth for more insights from one of the world’s most successful investors.

9. They don’t transfer responsibility to experts.

Successful people do seek out the advice of experts, yet they never yield responsibility. For example, it is reasonable to seek advice from a tax accountant in planning your financial affairs. However, successful people take the time to ask questions and evaluate the person providing advice to them.

Tip: When seeking advice from professionals like accountants and lawyers, ask questions and seek to have the advice explained to you. Otherwise, it is difficult to act on the advice.

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10. They don’t let the pursuit of money overcome other values.

Seeking financial success is a valid goal. Significant financial resources give you more options to give to causes you believe in. It also means improved access to technology, health care and leisure. However, successful people understand that financial success is only one aspect of a successful life. For example, neglecting health in the pursuit of money is a poor strategy.

Tip: Review your personal goals to see if you have a balance between financial goals, career goals, family goals and other activities.

Featured photo credit: Money/martaposemuckel via pixabay.com

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Bruce Harpham

Bruce Harpham is a Project Management Professional and Founder and CEO of Project Management Hacks.

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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