My series on Personal Finance Basics continues this week with a look at some of the most common personal finance mistakes we make that cost us dearly.
Are you guilty of any of these?
- Spending More Than You Earn – Duh! If you spend less than you earn, you will accumulate savings. If you spend more than you earn, you will accumulate debt. Find a way around either of these and you’ve somehow violated natural laws.
- Waiting for Tomorrow – We seem to enjoy living with the thought that “tomorrow, I’ll finally have enough to save,” or that “next year, I’ll make enough to travel,” or even “Once I retire, I’ll be able to do more with my money.” We exist in the present – why not try living in the same reality too? Save today. Travel today. Live your life the way you want to, today, by being smart with your money and doing what you can afford.
- Losing Financial Perspective – It’s incredibly easy to get bogged down in the “thick of thin things,” to quote Stephen Covey. Focusing on priorities and being able to maintain a bird’s eye view of your financial goals and progress is vital to understanding what it is you’re trying to achieve in your financial life.
- Using Emotions as a Guide – Any successful investor will tell you that fear and greed are the driving forces of the market. That, and you should always do exactly what everyone else is not doing! How scary is that? Very. And it’s precisely why you should never manage money (or your investments) with emotions – only with objective, hard data and smart decision making. Otherwise, you’ll buy that $500,000 house you “really like.”
- Relaxing on the Big Stuff While Tightening on the Small Stuff – It’s great to be frugal and cut out your daily $4 cup of coffee. It will save a great deal of money in the long run. But the same people that over-frugalize on the small things go out and buy a new Lexus, a house they can’t afford, or blow money on a vacation to Australia that’s paid using credit. The bigger the purchase, the more restraint, research, and smarts you should bring to the table.
- Expecting a Smooth Ride – Haven’t you heard? Life isn’t fair. No matter how hard you try, you’ll be dealt a card you didn’t expect. How well you can cope with that card is all about preparation and expectation. Rolling with the punches might be a game of probability, but you’ll probably get hit. Get ready.
Did I miss one? Share your own mistakes in the comments!