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7 Common Mistakes On The Journey To Being Wealthy

7 Common Mistakes On The Journey To Being Wealthy

Wealth has often been used synonymously with being rich. However, the two are not the same. Being rich is only a small element of your overall wealth. When we talk of wealth in this context, we are speaking about the passions, freedoms, experiences, relationships, desires and actions that money can’t buy.

There are so many people in our society today who die in the pursuit of riches, never realizing that they were some of the wealthiest men on the planet. It is obvious that money should be saved, invested and not wasted. However, there is also a certain degree of self-awareness that must be reached to attain wealth.Below are seven mistakes many individuals make in their pursuit of wealth.

1. They spend time on things that don’t align with their true wealth.

According to author Bronnie Ware, one of the top five regrets of the dying is, “I wish I’d had the courage to live a life true to myself, not the life others expected of me.” It’s easy to get caught up in what society defines as wealth: successful businesses, money, power, prestige etc.

In reality, wealth is whatever you value most. That could be family, travel, solitude, adventure etc. However, you have to be self-aware enough to understand what your true wealth is and prioritize that over the labels and definitions of popular culture. No two people will have exactly the same wealth, because not everyone wants the same things out of life. The wealthy will not spend so much time, money and resources on something that is not an absolute passion.

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To redirect your life and focus, take a few minutes to actually write down your wealth like you would a budget. Make sure you are writing down thing you love to do (ACTIONS) and not material things like boats, planes, fancy cars etc. that most people put on their vision boards.

2. They have too many goals.

One major money mistake people make on the road to wealth is having too many goals. In other words, having too many things you want to accomplish is actually a distraction. Mike flint, is a pilot who has flown four United States presidents. He was also the personal pilot of Warren Buffet for ten years.

He asked Buffet for tips on prioritizing his career and building wealth. Buffet told Flint to write down his top 25 goals and then circle his top 5. As flint confirmed that he would start working on his top-five list right away, Buffet inquired about the second list. “It’s not as urgent, so I ll get to it later” He said. To which Buffet replied, “No Mike, you have got it all wrong. Everything you didn’t circle just became your avoid it at all cost list.”

Take a few more minutes and clean up the distractions that you have created for yourself by setting to many goals. Write down your top 25 life goals and circle your top 5. The remaining twenty just became your distraction list. They should be set aside without attention until your top 5 have been accomplished. If not, your lack of focus will cost you in the long term.

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3. They don’t know how to live “Sophrosyne”

To live Sophrosyne is to have a healthy state of mind, characterized by self-control, moderation, knowledge and balance with a deep awareness of one’s true self, resulting in true happiness. Sophrosyne is simply living simply, knowing the difference between wants and need. It can also be reflected in the two most famous saying by the philosopher Plato; “Know thy self” and “Nothing in excess.”

Spending too much on wants is a money mistake seen in the poor and middle class. Most people chase wealth as an excuse to live in excess. They display their insecurities in lavish homes and cars. These things aren’t wrong, but they shouldn’t be the driving force. Sophrosyne should not be confused with self-denial. Make a goal to set aside some money for a splurge in moderation.

4. They don’t pay themselves first

When trying to create monetary wealth, the obvious first step is to create a budget. However, most people don’t truly understand how to write and follow a budget that will create wealth. Most people create a budget either by calculating how much they need to pay for all their needs, wants and bills and still make it to next month, or, they figure out how much money they have to spend that month and budget to spend it all on their bills, needs and wants.

This budget ensures survival, not wealth. To really get ahead you have to create a budget that pays you before it even considers paying a bill or buying a want. You must then pretend that money doesn’t exist. It’s not vacation money or new car money. This is your nest egg and you are going to have to sit on it awhile and watch it grow before it is ready to hatch.

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5. They don’t take risks

So, you have saved a hefty sum and your nest egg is ready to hatch. This is where you are going to have to be very strategic in trying to turn your rainy day savings into a stockpile you could retire on. While saving and not overspending are good habits to have, they can become money mistakes if you don’t eventually put your money to work for you.

Any great capitalist will tell you that the key to creating great wealth is being willing to take a risk. Men like Vanderbilt, Rockefeller and Carnegie are perfect examples of risk-takers. They saw the possibility of a need and even though they knew it came with great risk, they had the vision to know that the reward was greater. These men were driven by a resolution greater than money. For them, creating wealth meant creating a legacy. Money was only a consequence of the actions they took in the pursuit of purpose and passion.

Any investment you make is going to be a risk. However, you can offset some of that risk by learning and gaining knowledge.
“Risk comes from not knowing what you are doing” – Warren Buffett.

6. They don’t understand the value of a reputation.

The dynamics of commerce in our culture today is quickly changing and the wealthy are quickly beginning to realize that your reputation and integrity is legal tender. Gone are the days of stomping on the little guy or back stabbing people on your way to the top. This old way of thinking is a big money mistake.

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In today’s online world, individuals and Businesses rely on reviews and rating when choosing a product or service. When people want to know about the services you provide, they automatically take to the internet to find out what people say about you. In this sense, your reputation is legal tender. One bad review could mean ten lost customers. Two bad reviews could mean twenty lost customers, etc. This means you have to consciously work to develop and sustain good relationships if you want your business or brand to succeed. While you must focus on your daily task to deliver quality products, do not forget that people will go where they feel the most valued. Take some time to build great reviews for your brand or business. Also take the time to work on mending broken relationships.

7. They don’t know how to delegate.

Many people open businesses to make money and be rich. However they never learn how to delegate work. This mistake can tend to be very costly. The wealth that is the freedom of owning your own business is replaced with the stress of thinking that the business cannot run well or smoothly without you.

This way of thinking will ensure that you burn out from stress. Do not confuse delegating work with micromanaging your employees. You must be able to trust their abilities to lead. Find out what the passions of your team are and see if there are any problems within the business that they are inspired to take action and lead change. This system helps you delegate work without ever having to delegate it. You will begin to see more work being done and accomplished around you.
If not addressed, the sum of these mistakes will begin to add up in cost. Take this moment to reflect on your perceptions .Are you on a path to wealth, or have you just trying to be rich.

“The joy and fulfillment found in the process of achieving your dreams and living with passion is often confused with the result of being rich. Do not measure your life’s journey to success with the fickle accompaniment of monetary and riches. Your journey should be measured by the memories gathered, not the receipts; the moments spent in passion, not cash; and happiness shared, not bought.”

Featured photo credit: https://www.google.com/search?q=wealth&biw=1024&bih=455&source=lnms&tbm=isch&sa=X&ei=N_PFVOnkDsSpNsOzgMAK&ved=0CAYQ_AUoAQ#tbm=isch&q=warren+buffett&imgdii=_&imgrc=EzFApNykGWqXWM%253A%3BTDFlL1x4wJ60-M%3Bhttp%253A%252F%252Fonthemoneyradio.org%252Fwp-content%252Fuploads%252F2014%252F10%252Fotmr_warren-buffet_II.jpg%3Bhttp%253A%252F%252Fonthemoneyradio.org%252Ftag%252Fwarren-buffett%252F%3B3000%3B2000 via google.com

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Last Updated on November 27, 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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