Many people have made these grave mistakes. Make sure you’re not the next one.

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Everyone tells you what you need to do with your Finances.

But do they tell you what you shouldn’t do?

Human beings have a tendency to learn the hard way. When it comes to money and when it comes to life.

To learn from the mistake you have to make it.

Do you know what’s easier?

Learning from the mistakes of someone else.

I’m sure you know 100s of examples where people have lost their wealth because of poor financial management.

Athletes
Musicians
Film Stars
Anyone else
Famous example:

Mike Tyson lost $600m due to poor financial management.

Whilst it’s an unfortunate circumstance — we can still learn from their mistakes.

In this article, I’m going to share with you the 12 common financial errors we tend to make and how we can avoid them.

Remember.

Prevention is better than cure.

So let’s begin.

Read also: How to spend less and make more money

1. Borrowing Money for Luxuries

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The average credit card debt is around £2000 per person in the UK and $6000 per household in the USA.

This isn’t student loan debt (which is another scam).

Not is It debt to buy income-producing assets (which rich people do).

It’s bad debt.

Consumer debt.

When you borrow the money you can’t afford to buy goods you don’t need.

Designer clothes, expensive gadgets, brand new cars, whatever.

We love consuming — it releases dopamine hits which give us pleasure.

Swiping that credit card feels so good but we take it over the top.

This is a devastating mistake because 90% of people aren’t responsible for borrowing.

This isn’t free money. You have to pay it back with high levels of interest if you aren’t careful.

24%, 31%, 45%.

On many $1000 purchases, this racks up fast.

Not to mention if you don’t pay it off in time then you have an even bigger problem to worry about.

Now you’re considered untrustworthy which makes borrowing impossible.

Borrowing money you can’t afford
Not paying it back on time
Paying higher interest
Borrow another card to pay off old debt
Credit score destroyed
It’s a vicious cycle in which far too many people are stuck.

If you’re the financially educated individual who borrows using a 0% credit card and pays it off in time you’re smart.

There are many benefits to this:

Reward points
Improved score
Travel perks
Airport access
But are most people like this? No.

This is why instead of receiving rewards they will receive regrets.

Have the discipline set if you’re going to be borrowing money.

2. Lifestyle Inflation

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Hypothetical Situation:

You earn $50,000 per year and your total expenses are $45,000.

You have $5,000 left over for savings and emergencies.

Then you get a promotion or start a side hustle which raises your income to $75,000+ per year.

The smart individual will use this extra $25,000+ to create a surplus.

A surplus means you use the extra income to invest or keep safe for a bigger fund.

Now think of what the average person does.

They will increase their expenses to $75,000 to keep up with their lifestyle.

New car, bigger mortgage, more trips.

This is working backwards to wealth.

You need to enjoy yourself but at the same time not get trapped into lifestyle inflation.

What’s going to happen when you make $100k, $150k?

Are you going to spend the full $150k?

Don’t do it.

You have the opportunity to get closer to retirement but you prefer to buy those luxuries today.

I hope you do earn 6 figures and more.

I also hope you don’t waste it.

This is the exact reason why people who have salaries of $1m+ live paycheck to paycheck.

You could be rich.

But you would rather act rich.

Know the difference between the two.

3. No Savings/Fund

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I’m not a fan of saving all your money.

When you keep all your money in the bank they use it to invest.

You need to do that instead.

I am a fan of keeping 6–12 months worth of living expenses in the bank in case of an emergency.

Have no money saved at all? Dont do that.

I know you dont want to believe the idea that something bad could happen to you — but life doesn’t work that way

And you need to be ready.

Emergency in the house.

Unexpected health/injury.

Sudden change in life expenses

You may not have experienced it yet but ask your parents or your friends.

There are hundreds of events which could occur at any given moment in your life.

Do you have the thousands available to pay for them?

I encourage.

No.

I demand you start saving 3–6 months of expenses.

You will sleep better at night knowing you have the resources available to secure yourself.

4. Not Investing

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If you clear your debts and manage to build 3–6 months of savings you are ahead of most people in the world.

If finances were a video game you’re close to the final level.

You need to get past the final boss to finish the game.

Investing.

Now, there’s a variety of reasons why people don’t invest but let me assure you.

Don’t get fooled by these myths:

You have to be rich to start

It’s risky to invest so there’s no point

You have to watch your investments every day

And 100 other scenarios

I’ve heard it all.

All these points have counter explanations which I will explain in another article.

Choosing not to invest is equal to gathering your money and lighting a fire on it.

Inflation is rampant.

Your money is losing value every day.

The more they print the worthless it becomes.

Unless you use it to buy worthy assets.

5. Keeping Up With The Jones’

This ties with number 2 on this list.

Human psychology is a fascinating element to understand finance better.

We should study psychology.

A fascinating element is that we never want to lose or seem like we’re losing.

Here’s a trick:

Sometimes you have to look like you’re losing to win.

If the next-door neighbour buys a new car your thought is to buy a better one.

If the neighbour buys a 60” TV, you need to buy an 80” TV.

You don’t want to lose.

The phrase ‘Keeping up with the Jones’ describes this situation.

No one wants to look like they are poorer than their neighbours.

It’s a social status.

Losing the temporary status game to gain permanent wealth is the real win.

Who cares if John next door bought a BMW when you bought your financial freedom?

Who’s laughing now?

Let’s switch from this mindset of consumerism and adopt the belief of an investor.

You’re a winner if you’re able to keep your emotions at bay.

Remember:

You are in this to be rich.

Not look rich.

To some of you, this may sound ridiculous but it’s real.

There are people I’m the world who will take on debt for the illusion of looking wealthy to their neighbours.

Forget about it.

Focus on you.

Read Also: 99% of successful people do this 9 things early in life

6. Not Expanding Income Sources

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For those of you who work a 9–5.

You may have been working at the same company for 5+ years.

You’re also starting to believe in the idea of ‘company loyalty’ and staying with this company forever.

Don’t get too comfortable.

Trust me when I say this:

You are replaceable.

Few companies are so reliant on an employee to the point where they have to keep them.

Your experience may be great.

You may love your time there.

You’ve made strong relationships with your co-workers and the work is great.

It doesn’t matter.

It could end at any moment.

Always rely on yourself.

If you get an opportunity to switch companies for a pay rise or better prospects of living.

Take it.

Switching companies will give you a salary increase of 20–30%.

Staying at your current company is a 2–5% increase — this doesn’t even cover the rising costs of living.

Don’t let your loyalty to a company exceed the loyalty they have for you.

On top of this, the greatest asset you have is yourself.

Build your skillset and knowledge to give yourself a pay rise.

If you ever lose your job you know you have yourself.

7. Failing to Set Goals

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You don’t need to be the kind of person who has an hourly tracker to be a goal setter.

That’s the same as being in a corporate office and it gets annoying.

Instead, you need to have a vision of what you’re long-term goals are and reverse engineer the process.

So make a financial plan.

Otherwise known as a budget.

Your budget gives you an insight into your:

Income
Expenses
Savings
Trends
From this, you figure out what you spend monthly and what you’re going to spend yearly.

For example, if you spend $3k monthly you know you will spend $36k yearly. Add on other factors and it could be $50k.

If your yearly expenses are $50k and you know that the typical investment account returns are 4%.

You need $1.250,000 in the market to never work again.

This is the process of reverse-engineering and goal setting.

How much do you earn
How much do you spend
What you need to invest
You may have $50k expenses or $250k+.

It’s your life and your expenses.

You need to know it to the core.

8. Getting a Useless Degree

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Controversial one I know but I have the right to tell you.

I have a degree in Finance from a well-established University (won’t be named).

What did I learn in those 4 years that helped me in the real world?

Not much.

I could have learned it on YouTube and Twitter for FREE.

A degree is a social status these days and it’s becoming less valuable (and more expensive).

It’s easier to get in

It costs more per year

There are degree subjects which have no use in the real world.

If you’re going to pursue a degree you need to be certain of its capability to help you in the real world.

Degrees such as:

Science
Technology
Engineering
Mathematics
Known as ‘STEM’ have the potential for high salaries.

Otherwise, you’re starting your adult career with $50k+ in debt which you could have avoided.

This is a crucial financial mistake brought upon teens as they aren’t as aware of what they’re getting into.

If the same person went to the government for a $100k loan to start their business would they get accepted?

No.

But for a university degree which doesn’t help them in the future?

Go right ahead and take this money.

9. Lending Money to Others (When You Need It)

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Again, another controversial one.

I understand you feel the need to help friends/family when they are in times of need.

And you’re a good person for doing so.

But in situations where you need the money to pay off debt or bills, you need to be self-serving.

It’s not selfish to take care of yourself first, it’s a necessity.

Even if you have millions there will be cousins coming from nowhere asking for money because ‘you can afford it’ or ‘it’s nothing to you.

I have a rule which you need to follow:

‘If you lend money expect it not to come back’.

People are quick to ask for money and love you at the moment the money exchanges hands.

But once you ask for the money to be returned they will get defensive and question your loyalty.

I have seen it many times and so have you.

Do not allow your kind nature to be taken advantage of because people will try.

I appreciate that this will be unique to each individual and there will be times when you need to give a helping hand.

Just be careful.

Read also: Top 5 ways to save your money in 2022

10. Being Unrealistic

A mistake I see many make is being unrealistic with their financial goals.

This boils down to your mindset toward money.

If you’ve been in a situation where you’ve been living paycheck to paycheck and borrowing money to get by.

Racking up huge amounts of debt.

You cannot expect the comeback to wealth to be easy.

Years of destruction aren’t fixed with weeks of progress no matter how hard that is to accept.

But, if you’re in a situation where you haven’t had any debt and you’re an ambitious young individual ready to invest.

Don’t expect to have freedom overnight.

Do you need to aim for high levels of wealth? Yes.

Is it going to be easy? No.

The only way it will be easy is if you win the lottery and you know what the chances of that are.

The path to wealth will take:

Patience
Persistence
Resilience
Planning
Consistency
Emotional Control
Embrace the challenge at hand.

11. Not Shopping Around

You will be surprised at the amount of money you save if you look around when buying.

Let’s take your household for example.

It will have bills such as:

Gas
Electric
Home Insurance
Phone Bills
Internet
Lighting
Other subscriptions, services and bills
Most people don’t take the time to figure out where their money is going and how they could save $1000s

This is why I encourage you to have a budget.

So you take back control of your finances and find out:

Who are your providers?
What offers can they give you?
What offers can their competitors give you?
Are you eligible for loyalty bonuses?
Spending a few hours on a Sunday to save $100s or even $1000s over the year is worth it.

Don’t you think?

You never know.

You might be overpaying on a whole host of items/services.

12. Not Prioritising

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The priorities of your expenses tell me what your financial future will be.

Do not confuse your needs with your wants.

A bill/insurance payment is a need.

A luxury designer clothing item is not.

If you go back to:

Mistake 1 (Borrowing for Luxuries)

Mistake 2 (Lifestyle Inflation)

Mistake 5 (Keeping Up with The Jones’)

The root cause of these problems comes from not having your priorities straight.

You want to look rich so you prioritise buying that new gadget instead of buying the insurance which will cover you for an emergency.

This is a random example but the principle is clear.

Your priorities determine your financial future and those who are careful with their priorities in order win.

Next time you’re in a situation where you need to buy something ask yourself:

“Is this a need or a want for me?”

The answer will be clear.

CONTRIBUTED BY Long Term Wealth

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