9 Most Common Mistakes in Personal Finance

We are all creatures of habits. Our habits play a big role in our personal and professional life. Avoiding those bad habits turns to be more important than ever. Below are the 9 of the most common bad habits and mistakes that keeps you away from wealth.

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1. First, ‘cash is king’. To some extent I would agree with this statement, however it is not completely this way. For example, YouTube is popular in lots of countries, but in some countries, it is even forbidden to use. So is the same with the concept of ‘cash is king ‘. Whether cash is king or not, it depends on the value, the deflation level, the devaluation level, inflation and so on and so forth. To tell if your cash is appropriated to keep, at least some amount of cash, you should know if the currency is stable in your country, in your specific region, what the economy is like, what your history of the currency is like. Perhaps you should keep your cash in a different currency which is more stable compared to your own local currency. It all depends on deflation, inflation, devaluation level, etc.

You should analyze the situation and analyze whether you should keep your emergency fund in cash of your currency. I mean cash and currency of your country or you should keep it in cash of some other country. Maybe dollars, maybe euro, check out your local currency market and decide.

2. Second, not having an emergency fund. This is super important and many people tend to forget that this is something that may keep them stress-free during times like now, like pandemic, lockdowns, whatever happens you have those money and you keep your life stress-free. It’s not only about having such fund. It’s about mindset, it’s about culture, and many other things. It’s not only about this emergency fund itself.

3. Third, not saving money every month. So many people tend to ignore that, like ‘Ok I have my emergency fund, I have enough money in my investment’ and they do not tend to save money on a monthly basis. Why is it important? Again, it’s about culture, it’s about your personal practice and that what keeps you motivated. As a consequence, the fourth mistake is not investing at all. So basically, if you keep only your emergency fund, you keep those money like ok, I have the money, I have the emergency fund, spend all the money I got on a monthly basis. That should not happen. You should also have the money that you safe. It can be 10-20 %. Some people tend to save up to 50% during their first years of investment, which is also really cool.

4. Fourth, not investing. If you earn enough, saving and then investing the money is a must. It can be your choice of investment. I’m not telling you to invest specifically in some type of assets or equity. It’s just something you should keep in mind that most likely all the pension funds and all the stuff that governments tell us that they will support us, I don’t think it will be possible in few years as a lawyer, as looking at all those structures in many countries those systems  because there are much more older people than younger generation people, who are supposedly supporting with their salaries and those taxes and deductions, social security funds.

5. Number Five is investing too much at once. When you start investing, you are trying to put all the money you’ve got into investment. Basically, you try to cut off half of your salary and then you are doing the wrong movements. Try to be consistent, you can start from smaller amounts. You don’t have to start like for 10, 20, 50 dollars or whatever. You can start with 1000 but make it your culture.

Check the markets, learn how to invest, learn how to calculate the risks, learn what is your preferable investment, diversify and start doing step-by-step. Do not get overwhelmed, try to choose one investment strategy at a time. So, if you are going to diversify, for instance, if you are going to invest in stocks, then you are going to invest in ERIT. Study one, invest some amount of money and then move further. Don’t try investing in everything at a time. Be patient, learn how to do that and then start investing and also test because every investor understands that okay if I lose, I should understand that there is a high-risk ratio that I may lose money and you should be fine with it.

If you put too much money in one investment type and that would be all the money that you’ve had, then if there is a high chance or high-risk strategy that will most likely burst. I mean you will not get any money out of it. What’s the point, right? So you should keep your risk ratio on a quite low level by diversifying obviously and doing it investing step-by-step.

6. Sixth, not investing enough to cover your future needs. For instance, you invest, you are stress-free or the way you want when you are retired. So, there is a reason for why you do that. When you plan on doing so, you should know how much you should invest, so that you would get the result you want. Many people say they are investors but they don’t have financial plan. That’s actually the next mistake, not having a financial plan, which is very important. This is the thing that most people ignore.

They are like Okay, I am an investor, I am investing but I don’t know how much I will get in a year or in two years or what is my financial plan or what is my financial goal. Nothing. Please, be precise. What is the purpose, how much money do you want with average ratio? Do you want those dividends to be paid off on a quarterly basis or annual basis or you don’t want dividends, but you want higher revaluation a year by year?

It all depends on the strategy, but you should know your why, you should know what the purpose is, what is the financial goal and what is the estimated amount you want to get in how many years.

7. Number Seven, not considering legal issues, taxes, jurisdiction, probably investing with the company because companies get those incentives that individuals do not get. Companies pay less taxes in many countries than individuals do. Safety issues, which is also kind of legal because most likely to the company nothing would happen. It’s about planning. So, in many cases investing as an individual in management jurisdiction that I’ve studied is not really helpful, is not something that brings you benefits, especially tax benefits or safety benefits. Just think about your study or higher an advisor in your country or where you want to do investment.

Study if there are any international restrictions on investment. Are there any kinds of capital movement restrictions? Basically, study all the stuff you need and check on their legal issues first because it will bring you most likely very good benefits, if you do your legal planning in advance, not afterwards like I invested, now what do I do? Because I have to pay how much taxes? This is rather not allowed in most of the regions in most of the countries but if you plan your taxes, tax plan is absolutely legal and you can do that to have better financial results in the future. It’s not actually the topic here, so I will not go into details but this is something you should keep in mind. So, the mistake is not considering legal issues and just doing whatever you want without even planning which could benefit you a lot.

8. Eight, waiting way too long before you start. So, what the mistake is, if you want to achieve specific financial goal by like let’s say age of 60 or 65 or whatever. When you start investing in your twenties or thirties, the amount you should invest is much lower. This is the thing that you should consider and you should keep in mind, investing the earliest the better even if you start with smaller amounts. And that would be a huge financial benefit for you in specific period of time, again, depending on your planning. You should consider all the compound rights, all the rights that you normally get. Would you reinvest the dividends that you get, or will you keep them?

9. Finally, number Ninth, not diversifying. Warren Buffett has a different opinion, but he also diversifies because he invests in different businesses. He doesn’t go probably for real estate and other real estate asset classes but it’s also very different when you have a corporate structure and they are trying to stay very focused on investing in businesses. There is a specific methodology that they choose to invest in those businesses which I think the concept of Warren Buffett is really cool in terms of understanding the business they invest in because many investors go just for stocks because something is blooming, something is not blooming. In my opinion, even when you are investing in stocks, it’s super important for you to understand the market trends, also to understand different incentives that are available where the market is going to go and understanding the business processes.

If you understand the business process of this specific business, then it’s much easier for you to understand what would happen with this business, how fast it will grow if the capital is there. They are looking for the businesses they think they are right. They’ve also made mistakes, so it’s normal for any, let’s say investor and that’s absolutely okay. But his methodology is a little bit different but still I want to tell you he diversifies, even if he invests in businesses, he invests in a variety of businesses, the brands he trusts, even Coca-Cola is there.

Do not think that he does not diversify. It’s also a specific type of diversification as regular investors we should be or can be more creative, we can find different types of opportunities. We can go for different, even Airbnb where you don’t need much of an investment but you can earn quite a lot and there are different strategies you can find online and look for that. I am just trying to say be creative and try to diversify specifically during lockdowns you’ve seen real estate investors specifically have seen advantages of diversification. Basically, try to stay on the safe side again risk is normal but try to optimize and minimize the risks is something we should do and should take care of. In my opinion not diversifying is a huge mistake.

Source Olga Fleming


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