Advertising
Advertising

If You Want To Be Wealthy, You Should Avoid These 7 Money Mistakes

If You Want To Be Wealthy, You Should Avoid These 7 Money Mistakes

Who does not dream of becoming wealthy? If you ask people around you about their goal in life, many of them would say that it is being rich or wealthy. The reasons why people want to be wealthy vary from person to person.

Whatever your ulterior motive is, if you want to be wealthy, there are tried and tested money mistakes – yes, money mistakes, that you must avoid. Here, we bring to you a list of seven money mistakes that all of us should shun.

1. Spending more than you earn:

It sounds like common sense but it is not. If this money mistake was simple enough to avoid, nobody would be in a financial crisis. This is a deadly habit and can ultimately lead to total financial distress. To make matters worse, we now have credit cards and other facilities that make us spend more than our financial means.  To curb the urge to spend more than what you earn, maintain a budget and then track it closely.

“Before you spend, earn.” ~–William A. Ward

2. Buying things you do not need:

All of us want to show-off our success but remember, wealthy people do not have to show if off. It shows itself but if you are on your path to being wealthy, don’t commit this money mistake. You should definitely spend on things of your interest but do not buy things solely for the purpose of impressing others, who are sometimes, even those people that you do not like at all.

“If you buy things you don’t need, soon you will have to sell things you need.” ~ Warren Buffet

3. Not facing your financial situation

You might ask me how making this mistake is even possible but this is our defense mechanism. When we are obese and don’t want to do any effort to lose weight, we start avoiding the mirror.

Similarly, when we know that our money matters are in bad shape and we are not ready to make an effort to fix them, we avoid looking at the exact figures and that makes matters even worse! We should put the figures on a paper or on an excel sheet and look at them very carefully. That’s the first step towards dealing with your money troubles.

Advertising

 4. Not having a plan

Just like it is required for anything else, planning is an absolute must for your financial goals. Your financial goals can and must include your retirement plans, planning to pay your debt as soon as possible and creating investments no matter if your income is high or low.

“Make sure you have a plan of your life in your hand, and that includes the financial plan and your mission.” ~ Manoj Arora

5. Relying on one income stream

Many of us live depend on a single income stream and we are quite happy to get a pay cheque on a fixed date. Even those of us, who run their own business or are self-employed, usually rely on one channel of income. This can lead to an absolute disaster. No matter how steady or great that income is, if it runs dry due to any problem, it can create huge financial issues.

6. Not trying to increase your income

If somebody asks you today to save more, do you automatically start thinking about expenses that you can cut down?

Advertising

Wrong approach.

The better approach is to try to increase your income. Let’s assume that a person saves 25% of their income, if the income increases, savings too will automatically increase. However, always trying to cut down on your expenses is not a very fruitful and long-term strategy. If you leave too many things, it will make you frustrated and you will not be able to achieve your goal of being wealthy.

7. Prioritizing spending over saving

When we have a pressing need at present, we tend to feel that we should fulfill that need and savings can always be done later. This later won’t ever come because your needs never end. Research chemist Neil McCarthy started investing in the stock market at a very young age. Today he has a net worth of about $2.1 million. According to him what made all the difference is this:

“If you wait to save out of what’s left over from your salary, it’s not going to happen. Pay yourself first.”

Advertising

If you want to be wealthy, there’s no easy route. Just focus on your goals and face the current problems in a realistic manner. Make sure you avoid these money mistakes on your path to being wealthy and success would be yours!!

 

Featured photo credit: Money – Savings by 401(K) 2012 via flickr.com

More by this author

Lianne Martha Maiquez Laroya

Lianne is a licensed financial advisor, Registered Financial Planner, entrepreneur and book author.

10 Key Elements of Effective Meetings to Avoid Wasting Time The Ultimate Morning Routine for Success of Highly Successful People 9 Surprising Benefits Of Kimchi That Will Make You Want To Try It Now 11 Signs That Tell You It’s Time to Let Go This Old Woman Has Lived On A Cruise Ship For 7 Years

Trending in Money

1 How to Set Financial Goals and Actually Meet Them 2 25 Killer Sites For Free Online Education 3 10 Recession-Proof Debt Consolidation Tips 4 The Definitive Guide to Get out of Debt Fast (and Forever) 5 25 Easy Tips on How to Save Money Fast

Read Next

Advertising
Advertising
Advertising

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.

Advertising

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!

Advertising

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.

Advertising

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.

Advertising

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

    Read Next