Do you ever find yourself scrolling through social media, envying the lavish lifestyles of influencers and celebrities? Or feeling a pang of jealousy as your friends post pictures of their latest purchases or expensive vacations?
The truth is, building wealth isn’t about flaunting material possessions or keeping up with the Joneses, the Guttierezes, or the Laudes. It’s about making smart financial decisions that will set you up for a secure and prosperous future.
Unfortunately, many people fall into common financial traps that can hold them back from achieving their goals. If you’re tired of living paycheck to paycheck or feeling like you’ll never get ahead, it’s time to take a closer look at your finances and make some changes.
Start by avoiding these 15 money mistakes that can cause long-term financial strain:
1. Failing to plan for the future
It’s easy to get caught up in day-to-day life and forget about planning for the future. But if you don’t take the time to develop a plan, it’s hard to know whether your current financial decisions are setting you up for success or failure.
Start by creating a budget that will help you track and manage your expenses, save for the future, and invest in yourself. To ensure success, automate your finances whenever possible so that the money is saved before you ever have a chance to spend it.
2. Not having an emergency fund
Emergencies happen — whether it’s an unexpected medical bill, a home repair, or a job loss. To protect yourself from financial disaster, set aside an emergency fund of three to six months of living expenses. That way, if something happens that you weren’t planning for, you won’t be left struggling to make ends meet.
My husband lost his job not once, but twice during the pandemic and if it weren’t for our emergency fund, we would have been in a much more precarious financial situation.
3. Failing to pay off high-interest debt
High-interest debt can be like quicksand — the more you owe, the harder it is to get out of debt. Prioritize paying off any high-interest debt first and try to do it as quickly as possible. Doing so will save you money in the long run, freeing up more of your income for other investments.
Making small sacrifices like eating out less or cutting back on entertainment can help you make extra payments toward your high-interest debt and get rid of it faster. Once you’ve paid off the debt, you can redirect that money to your savings and investments.
4. Not investing for retirement
As a mom, I know firsthand how hard it is to put aside money for your own future when there are so many other expenses to worry about. But as we all get older, the importance of planning ahead and investing for retirement will become more and more apparent.
For the younger moms out there, it’s a good idea to start investing for retirement as soon as possible. The earlier you start investing in your retirement, the more time your money has to grow. Even if you can only contribute a little each month, those small contributions will add up over time and help ensure that you have enough money saved when you retire.
There are many different types of retirement investments to consider, so make sure to do your research and find out what works best for your individual situation. You can also talk to a financial advisor if you need help choosing the right retirement investments for you.
5. Taking on too much debt
Debt can be helpful if you’re buying a house or car, but it can also get out of control quickly. Try to limit yourself to only taking on the amount that you know you’ll be able to pay back in a timely manner. Pay off your credit cards each month so you don’t start to accumulate interest payments.
6. Not diversifying
Spreading out your investments across different types of assets can help to reduce risk and ensure that if one investment performs poorly, it won’t have a dramatic effect on your overall portfolio. Be sure to consider different kinds of stocks, bonds, mutual funds, ETFs, and other investments when building your portfolio.
7. Not investing in the stock market
The stock market can be a scary place, but it’s an important part of any portfolio. Investing in stocks can help you build wealth and protect against inflation over time. Start with small amounts and work your way up as you become more comfortable with stocks.
You can sign up with an online broker to get started and take advantage of low fees. COL Financial and First Metro Securities are just two of the many options available.
Alternatively, you can invest in mutual funds or UITFs, which are professionally managed. Investing in stocks can be intimidating but there are countless resources available to help you get started.
8. Not having an investment plan
Before making any investments, it’s a good idea to have a detailed investment plan in place. This plan should include your goals, risk tolerance, time horizon, and the types of investments that you’re interested in.
A well-thought-out investment plan will help ensure you make informed decisions and stay on track with your long-term financial goals.
9. Taking too much risk
High-risk investments can be great, but only if you understand the risks and are prepared to take them. Don’t overextend yourself with investments that may not pay off or expose you to more risk than you’re comfortable with.
10. Investing too conservatively
While being risk averse is important, it’s also important to invest in higher-risk options that may have the potential for higher returns. Investing too conservatively can limit your upside and leave you behind other investors who take on more risk.
11. Not paying attention to fees
Fees can really add up over time. Make sure you understand the fees associated with any investments you make so that you know exactly how much of a return you’re getting on your money.
12. Ignoring market conditions
No matter what kind of investments you’re making, it’s important to stay aware of the current market conditions and how they can affect your investments.
Consider factors such as interest rates, economic growth, inflation, political stability, and other trends in order to make informed decisions.
13. Not having an exit strategy
Before making any investments, you should know when you plan on selling. Having an exit strategy is important to help protect against losses and maximize profits. Determine how long you’ll hold onto investments and set a target sale price before investing.
14. Not tracking your investments
It’s important to keep track of all of your investments and their performance over time. This will help you understand how your investments are performing, which can in turn provide valuable insights into where to invest more money or when to hold back.
Tracking your investments also allows you to easily identify potential opportunities or when it’s time to sell off a certain investment.
15. Overlooking taxes
Taxes can play a major role in the overall return on your investments. Make sure to factor in any applicable taxes when assessing and evaluating potential investments.
You may also want to consider setting up a tax-advantaged account, such as Personal Equity & Retirement Account (PERA) or a Tax-Free Savings Account (TFSA), in order to minimize the amount of taxes you pay on certain investments.
In conclusion, building wealth isn’t just about making more money; it’s about making smart financial decisions and avoiding common mistakes that can hold you back. We’ve covered 15 of the most common financial mistakes that people make, from overspending to ignoring debt to not investing.
By understanding these pitfalls and taking proactive measures to avoid them, you can set yourself up for a more prosperous future.
So, don’t wait until tomorrow to start making changes. Take action today! Review your finances, set goals, and create a plan to achieve them. And remember, financial freedom is within reach if you’re willing to put in the effort.