Everybody makes mistakes. Life is one trip through the buffet line; there’s no rehearsal, no do overs, no second plates. You start at one end and go to the other and that’s it. So, of course we’re going to make mistakes and when those mistakes are financial it can hurt later in life.
Since making mistakes is a given, maybe the best anyone can hope for is avoiding the really big blunders, the financially devastating blows that end up turning life into one long grind and cripple people during the very years they should be out doing and experiencing the most.
Living Without Savings
If you’re not saving some money then financial mediocrity will be your constant companion in life. Most people complain they don’t make enough to save money but, nearly without fail, if I look at the finances of people not saving money, there are extravagant expenses and wasted money in the budget. The vast majority of people are not saving money because they’re spending too much. If you listen to financial gurus, like Dave Ramsey, on the radio they say “no” to almost everything. I’m not quite that harsh or disciplined in my own spending, but the fact remains the majority are not saving enough because they are spending too much.
Not Investing In The Stock Market
Nearly half of Americans sat on the sidelines and watched as one of the greatest financial bull markets in history created trillions in wealth. The creative destruction of capitalism wiped away the old and inefficient and replaced them with growing, dynamic companies on the cutting edge of technology. Even when the market is down, even during times of turmoil, there are companies making money, paying dividends and growing their share value. The fact so few people are invested in the market helps explain why most of the gains keep flowing to the same small group at the top. Keeping your money in savings is a guaranteed loser.
Housing is a poor investment and the fact that the only stash of value many people have is their home only proves that the majority are really poor investors. What’s worse is how many Americans living in an a comfortable, affordable starter home will sell that thrifty home to upgrade to another that is far less affordable. The transaction costs in real estate are obscene. First there is anywhere from 6%-7% for a realtor, another 1% for closing costs, plus taxes and transaction fees for state, county and local governments. House flipping is a loser that can cripple your finances for decades.
Focusing On Getting Rich
This is the most bizarre mistake I see in the world of personal finance and one of the most destructive. People focused on making money are never satisfied with money. Some of the richest and most successful people never sat around thinking about getting rich. Richard Branson started out selling records out of the trunk of his car. Nora Roberts started her career grinding out pulp romance novels for slush publishers like Silhouette; today she makes $50 million a year. Josh Holloway, the actor made famous by playing the character Sawyer in Lost, endured nearly a decade of rejection before landing that hallmark role. None of those people ever fretted about getting rich; they just kept at it, kept showing up, kept building their influence. They endured rejection, poverty and obscurity but they had a thing and they kept doing it.
Even if you don’t get famous, you can still become a millionaire. Live below your means, save money and invest wisely. Do that long enough and you’ll be rich. I’ve seen it happen over and over and over again. Find something you do better than anyone else and just keep at it.