Money mistakes are made by everyone – even rich individuals have had to learn from past experiences before getting the hang of successfully managing their money.
Responsible financial management involves adhering to tried-and-true money advice. The goal is to strive for a mindset that helps you build wealth and learn to avoid money mistakes.
Here are the top five money mistakes that will prevent you from building long-term wealth.
1. Depending on one income stream
If the economic recession of 2008 taught us anything, it’s that depending on a single income stream for your livelihood is a dangerous thing. While it’s still a good measure of your character to work in a career field for many years, it’s also just as important to diversify your income streams.
Take on a few extra jobs on the weekends or start moonlighting as a freelancer in your spare time. Your day job salary will pay the bills and your supplemental income will pay for vacations and other extras.
2. Not measuring your money every month
If you’re in debt, your finances won’t fix themselves. You need a plan of action, and this starts with tracking your income and expenses every month. As the popular saying goes, “what gets measured gets done” and tracking your money is a key way to measure the health of your finances. There’s no way you can build wealth if you don’t know how much you’re earning and spending monthly.
Priorities also play a big part in your ability to build wealth, and the way to realign your priorities to your spending habits is to consistently keep tabs on them and readjust as necessary.
If you find you tend to overspend during the same time every month, tracking this trend will allow you to see patterns and learn more about your money personality. You’ll learn how you handle money so you can better control certain spending temptations.
3. Investing in short-term trends
Another mistake to avoid if you want to be rich is investing in short-term trends.
It’s easy to be persuaded by the latest stock market spikes or see a new technological advancement and want to jump on board. Money is best managed with your head, not your heart; don’t let trends dictate your finances.
Look for industries to invest in that you’re knowledgeable in or that have long-term staying power. For example, Warren Buffett invests in industries like electricity, banks, insurance, food and railroads. These industries have been around through the economic downturns and booms since the turn of the century.
4. Saving money without goals
Saving money for the sake of saving money is a noble goal, but it’s not nearly as effective as saving money towards specific goals that excite you.
In addition to motivating yourself to save with specific end goals in mind, it’s important to understand what you’re saving for; you may be better off investing versus simply saving.
A savings account pays around 1 percent interest (sometimes much less) for stashing your money in one place. On the other hand, investing your money into secure mutual funds or an IRA has historically paid an average of 7 percent or more.
Knowing how you plan to use the money you’re saving will help you choose the right vehicle to stash it, as well as get you excited about the prospect of the goal.
5. Comparing your finances to everyone else
Not comparing yourself to anyone is a lesson easily forgotten when your neighbors purchase a new, luxury car, or leave for an expensive vacation. However, it will derail your personal pursuit of financial success. Comparing your finances to the outward evidence of someone else’s finances can be destructive; you only see half the picture.
In an article from CNN Money, over 76 percent of Americans were found to be living paycheck to paycheck in 2013. The statistics don’t lie, even if your neighbor or best friend do. Keep the facts in mind when you’re trying to keep up with the Joneses. Your goal should be to seek abundance, which can equate to love, happiness and confidence, versus flashy possessions.
Avoid these money mistakes
Spend your money on what makes you and your family happy, and invest your time into experiences that enrich your mind and soul. Striving for more wealth and financial success is something to be proud of; it allows your loved ones to have a bright future. However, falling into any of these financial traps can put their financial stability at risk. If you want to be rich one day, then avoid these mistakes to help prevent you from potentially big setbacks.
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