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The 5 Biggest Financial Mistakes People Make

Top 5 Financial Mistakes Everyone Should Avoid

  1. 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.
  2. 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.
  3. Spending too much on an wedding/engagement ring – Both the “dream wedding” and a non-appreciating piece of rock 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…
  4. 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.
  5. Waiting to save – Saving whatever is left over after your monthly expenses usually leads to very little savings, if any. Instead, “nudge” 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)

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Comments (2)

  • Good article! Thanks for sharing. Regarding mobile loans iin Kenya, do you know hat there is
    a new player in town? It’s called Zenka.
    Zenka is a mobile loan platform on Android and iOS which lso supports USSD.

    Just in two months aftr launch in December 2018 Zenka
    jumped into top5 most popular financial apps in Kenya (according to Google Play
    Stode and SimilarWeb.com) and became top1 trending financial mobile apps.
    Check it out and share your thoughts – http://bit.ly/2JOgHPl
    Thanks and keep up good work!

  • Edwin
    April 13, 2019 at 9:29 pm Reply

    I spent a great deal of time to locate something such as this

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