Self-help financial books often focus on selling the feeling of financial success, but the feeling of financial success doesn’t necessarily mean that you’ve actually achieved financial success. You might want to live comfortably, own a yacht and a sports car, or you might want to be the richest person in the world. At the end of the day, you can go up and up and up… but the least amount of money you can have is zero.
Zero money invested, zero savings or zero income isn’t a place you want to be. This is why we’ve decided to list the most common money mistakes that put us on the journey to zero. Knowing these common errors will help you to avoid making them in your own life.
Start budgeting early – the best time to start is during your first job which brings in constant and guaranteed cash flow. Creating and following a budget shouldn’t be tedious, especially not with an app like 22seven.
Increasing spending as your income increases
We promise ourselves that when we finally get that raise, we will save or invest the portion by which our income has increased by. However, this promise is often broken. As much as you deserve to spend that hard-earned money, saving or investing a portion of it will benefit you in the long-run.
Misusing credit cards
Credit cards have their benefits but one of their biggest drawbacks is that you can run up a huge amount of debt in a really short period of time. Many people fail to delay gratification and use credit for basic consumables that should rather be bought in cash. It’s also easier to stop paying attention to your budget when you’re constantly swiping that plastic card.
Jumping into the stock market head first
Before thinking of investing in shares, ask yourself the question: “Do I have an emergency fund?”. This is your “rainy day” fund. It’s a sum of money you can fall back on which is usually measured as a certain number of months’ worth of expenses.
If there is no cash saved up for tough times, you might be forced to sell shares which could recently have been going up or sell them when they’ve been going down – you can never predict when. Many investments require a long-term time horizon and shouldn’t be used for short-term goals like saving up for weddings or a car.
And, as always, have a diversified portfolio. Many of these portfolios can be bought off the shelf from established asset managers. If you’re self-directing your investments, remember that the stock market isn’t a lotto machine.
The Golden Rule
Being able to make a repayment isn’t the same thing as being able to afford the purchase. This is a trap that many people fall into. Your circumstances may change one or ten months from now which may impact your ability to make the repayment in future.
These errors are common for a reason. Now that you’re more aware of them, you’re more likely to avoid them in future!