8 Money Mistakes To Avoid in 2022
And what to do instead
When learning to build wealth, it is equally important to understand what NOT to do. If you can avoid these major mistakes, you will be in a better position to make progress on your financial journey.
Many of these are mistakes that I learned the hard way when I first started.
I hope to share this knowledge with you to help you make 2022 a great year financially.
Mistakes to Avoid
#1. Spending uncontrollably — so many of us are unable to control our spending, leaving us with lots of things we don’t need and not much left over to build wealth.
#2. Buying liabilities — too many families, especially the middle class, buy cars, homes (including vacation and second homes), boats, etc thinking that they are building wealth; unfortunately, all these things and all the consumer debt serve to hold you back.
#3. Using excessive consumer debt — using debt to buy liabilities is not how you build wealth; car loans, credit card loans, even mortgages on a personal residence are not constructive (albeit better than a car loan).
#4. Remaining uneducated — to improve our financial situation, we must learn how money and investing work; even experts like Buffett read almost constantly as they try to improve their knowledge; how can you get better if you don’t learn something new?
#5. Being too scared to invest — it is important to understand what you invest in as risk comes from not knowing what you are doing, but once you learn about money and investing, you need to practice to get better; if you are always only studying and never brave enough to put in some money, you will never fully learn and improve; as the proverb says “The journey of 1000 miles begins with a single step,” so make sure you start investing.
#7. Fearing market crashes — when investing in the stock market, you have to understand that volatility is part of the game; there will be good days and bad days, and there will be bull markets and bear markets; trying to avoid bear markets is a way of timing the market, which doesn’t work consistently.
Keeping no cash — while investing is the best way to build wealth, you need some insurance in the form of cash; you never know when an unexpected cost or an emergency will pop up, and you never want to sell your assets under duress.
#8. Speculating too much — there is nothing wrong with speculating with a small per cent of your wealth (say 10% or so, depending on your financial situation), but going all-in on GameStop, Bitcoin, or Tesla at record high prices hoping the price will only go up is gambling with your future; investing is not gambling, and it is better to make consistent solid returns than it is to “boom and bust” year after year.
What to do Instead
Instead of following the crowd this year, why not make 2022 a year of financial progress? Rather than making the common mistakes listed above, look instead to do the following:
Manage your spending — track your spending with a program like Mint or Personal Capital to ensure you know where your money is going; set up a budget and work to reduce your spending as much as practical to have more money to invest every month.
Buy assets — the trick to getting rich is to buy (or build) high-quality assets and then hold them long term; you need to own things that will make you rich, like investment real estate, stocks, and businesses; be selective about what you buy, then be patient to watch the compounding work to create more and more wealth each year.
Avoid consumer debt — since consumer debt holds you down, avoiding it will help you both control your spending and give you more money every month to invest and build wealth; the conservative use of debt for stable investments like real estate, however, can do wonders for your wealth.
Get educated — you cannot build wealth if you don’t understand money, taxes, and investing; make sure you spend some time every week to learn more about how to build wealth, and you will make better decisions that will compound into great financial gains over the coming years.
Take action — studying and learning from books is a great way to get a head start, but you will never become great at anything without practice; once you have enough knowledge to avoid the biggest mistakes, take the plunge and invest; the faster you learn, the more money you will make and the faster you will make it.
Embrace volatility — markets will always go up and down; use it to your advantage by buying more when markets drop; if you have an allocation between stocks and bonds of say 80%/20% and the stock market crashes, you can rebalance by selling bonds and buying stocks cheap; this will boost your returns without you having to try to time the market; market crashes are a great time to get rich.
Keep some cash — no matter how much you love investing, you can never predict the future; you should always have an emergency fund for the unexpected, and you should always try to keep some extra cash around for investment opportunities that you don’t know about today (such as market crashes).
Avoid speculation — different from what you see in the media, there are no reliable ways to get rich quickly; investing in stable assets builds wealth, but it takes time; trying to get rich in a hurry through speculation (buying something just because you hope the price will go up, rather than looking at the fundamentals) will more often than not result in poor returns over time.
Building wealth is not complicated but it is difficult. It requires a little knowledge and a lot of commitment. You need to be able to control your actions and be patient to see reliable payoffs.
If you try to rush it or take shortcuts, you will more likely than not end up back where you started, or worse.
If you don’t know anything about investing, start with low-cost index funds through a quality broker like Vanguard and contribute a regular amount every month. This will help you build your wealth over time.
Those who find they enjoy learning about money can move on to real estate and other asset classes, always trying to learn more and being the best investor they can be.
Again, you won’t see instant results, but over five or ten years, I promise you the outcome will be impressive.
Best of luck investing and let me know how I can help!
After struggling to build wealth early in my career while following traditional financial advice, I set out on a path to learn about investing. Over a decade later, I’m financially secure and working towards full financial independence through real estate and the stock market. I have succeeded in building my financial ark to help me weather whatever storms may come.
I founded Building Arks to help busy professionals like you ignore mainstream advice and build real wealth.
CONTRIBUTED BY Building Arks with Jason Clendenen
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