Trying to navigate the world of money can be tough. Money is part of everything we do and because of that all of us have to make multiple money decisions each and every day. While the majority of the decisions we make are good, or at least not “too bad”, every one of us makes mistakes when dealing with money. While there’s a huge list of potential mistakes we can make I thought I would highlight 3 mistakes that I’ve seen many people make over the years. Each of these mistakes can have a long lasting impact on how well we are positioned to live the life we want to live.
Let’s say you accidentally smash your toe into a chair leg while walking around the house barefoot (like I just did a couple days ago). You might scream a few choice words, grab an ice pack and then do a quick web search for how to treat it. After a few days, you realize that your toe is turning a lovely shade of greenish purple and rightly decide that your “Googled” toe needs some professional attention. Let’s take this analogy and apply it to money:
Scenario: You have some some student loans & credit card debt and aren’t really doing much in the way of saving for any short or long term goal. You decide that it’s time to fix that so you do some “Googling” to find out what to do. You come to the conclusion, via the internet, that you need a financial plan so that you’re not living paycheck to paycheck forever. The internet tells you to:
Sounds easy, right? For some people it is and maybe you’re one of them. For those of you who don’t find this task to be intimidating, make sure you aren’t getting in over your head. In the example above, the toe turning green is a visible (and painful) sign that professional intervention is needed. What about your “do it yourself” financial plan, who is alerting you to any pitfalls along the way? It would suck to put a whole lot of time into structuring this master plan only for it to fail because, unbeknownst to you, your money didn’t alert you and say “hey, can you please help me get some professional attention, I’m not doing so well here”.
Unfortunately this exact scenario is what leads to some very sad stories about people hitting retirement age, finding themselves in a bind and not able to afford the life they “planned” for. The moral of this story is that while the internet can provide some very good information, it’s not “Warren Buffet in a can”, you don’t become a financial pro just because you “Google it”. There’s a time and a place for professional help so be sure to get competent help when you need it (whether its with us or some other financial professional). Your future self will thank you.
You know the saying, “time is money”? Well, time ACTUALLY IS money and delaying saving costs you money. The longer we have to save and invest for our future goals the better. Why is this true? Because, over time, money tends to grow due to the effects of compounding and the longer you wait the less opportunity the money has to compound. One of the best examples of this is the “doubling penny” illustration. It does a great job highlighting the opportunity cost of wasting time. Here it is: If you doubled a penny each day in a month (30 doublings), that single penny would be worth $5,368,709.12 (do the math, it’s true). But if you start 10 days late and only give yourself 20 days to double that penny, that exact same penny is now only worth only $5,242.88. Those last few doublings are THE MOST crucial.
There’s another saying that applies here and that’s “there’s no time like the present”. Take that saying to heart, especially when it comes to your money and saving. Get your financial life in order & start saving whatever you can, as soon as you can and you will be ahead of the game because your money will have more opportunity to grow. If you don’t know where to begin, consider working with a financial planner who can help you prioritize your resources and goals and get you started off on the right foot.
Our society is constantly telling us to “Spend!…Spend!…Spend!” even when we don’t have the money. How can you overcome that no money problem? For many of us its with a credit card. While credit cards can be a useful financial tool they can also draw us into the world of overspending and sidetracking (or even destroying) our long term financial objectives.
A case could be made that the credit card was the single worst and best invention of our time. The credit card allows us to gain financial leverage without seeing the full scope of the costs and benefits. Basically, the credit card allows us to borrow money we don’t have to buy stuff we need today with the assumption that we promise to pay for it in the future. This is very handy when the 80″ HDTV is on sale at Best Buy and Super Bowl Sunday is next week…AND…it’s on sale! But it becomes a bad thing when your statement arrives and you find yourself making the minimum payment month after month, racking up interest expenses.
So just as compounding can work in our favor when it’s money we’re saving (as we just learned) it can be detrimental when it’s money we are spending. Remember, a credit card is just a tool, not a magic wand, and we need to use it wisely. If you find yourself paying just the minimum monthly payment on a credit card(s) it might time to sit down and work on an achievable spending strategy.
If you saw some of yourself as you read through this post welcome to the club. Most of us, including your humble author, have made these mistakes at one point or another in our lives. Making mistakes is fine and part of life. It’s when we make the same mistakes over and over or get trapped by our mistakes that they can become a problem. If you are feeling trapped by some of your past financial mistakes and would like some help “resetting” things we would be honored to speak with you and see if our services might be a match with your needs. You can Contact Us to find out more.
Image courtesy of TaxCredits.net