The 5 Biggest Financial Mistakes People Make
Top 5 Financial Mistakes Everyone Should Avoid
- Obsessing over your investments – Think of yourself as a company with a balance sheet and a income statement. Your core business is actually your job, not your investment portfolio. Rather than obsessing over “the best investment”, invest in yourself – further education/training, or even starting your own business. Over your life time, your investment returns is paltry compared to your earned income.
- Taking on too much bad debt – Debt/Liability is not always a bad thing. A new start-up company has to borrow money (via debt or equity, see Shark Tank) in order to acquire the necessary assets to run the business. The same logic applies to student loans – you are incurring liability with a student loan in order to acquire an asset, which is your education. However, if that education doesn’t yield a job that pays enough to cover your living expenses and the student loan payments (interest expenses), you’re unlikely to pay down the loan, which becomes a permanent liability on your balance sheet. In other words, the company will never be profitable.
- Spending too much on an wedding/engagement ring – Both the “dream wedding” and a are not capital expenditures that will improve the bottom line – they are total write-offs. Worse yet, many people borrow (via credit cards or “wedding loans), which, again, become liabilities with interest expenses. It’s one thing if you’re headed for a 50-year marriage, in which case you can kinda/sorta call it “amortization” if you rationalize it really hard. But…
- Getting divorced – With a 50% divorce rate, it’s hard to justify high expenses for tying the knot. While no one ever anticipates a divorce, the financial impact can nonetheless be catastrophic. In my own case, the ex-wife pushed the EJECT button less than a year after we walked down the isle, after I had paid off 30ok of her student loans and another 250k in medical bills, not to mention 250k for a fancy wedding reception. Luckily, I did not lose half my assets, but many people do, and sometimes there’s even alimony/palimony involved, which are aperpetual liability that can never be paid off, which doesn’t even exist in the corporate world. The lesson here? Get a pre-nup.
- Waiting to save – Saving whatever is left over after your monthly expenses usually leads to very little savings, if any. Instead, “n ” yourself by setting up automatic NSSF/Saving contribution at the maximum amount. This way, you can’t spend the money that you can’t see. When your so-called “disposable” income is greatly reduced, getting that new car or taking that exotic vacation are suddenly out of the question .
(Source: Jon Chen via Quora)