The financially savvy are a rare breed. They are the ones who mastered the basics, made plans for getting out of debt and began ventures to accumulate wealth. But even the financially savvy are known to make a mistake now and again. Let’s take a look at some of the most common mistakes that people with money are prone to make, as well as a few tricks for combatting them.
You’re Spreading Yourself too Thin
One pitfall that the financially savvy fall into is hazardous multi-tasking. Having a plan for your finances is a great way to keep you on track, but be careful that you’re not spreading your resources too thin. For instance, if you’re investing in a 401(k), starting a business in your garage and buying investment property on the side – all at the same time – you might be doing more harm than good. In most situations, it’s best to start with a single venture, build a solid foundation, automate it and then (and only then) begin to pursue something else. If you’re interested in learning more about the automation aspect of this plan (which is the most important part), be sure to read Tim Ferriss’ book “The 4-Hour Workweek.”
You’re not Making Clear Goals
There are two types of financially savvy people in the world: the short-term planners and the long-term planners. The short-term planners have some of the best budgets around. They usually look at their money from a detailed month-by-month perspective, saving and investing a specific amount on a regular basis. This disciplined approach to finances, while admirable, can actually be problematic. Being engrossed with the short game may keep them from focusing on the bigger picture. Sometimes you have to look away from the leaf to see of the forest.
The long-term planners are the ones with their thoughts on the future. These are the people who strive to retire in their 40s, or to start their own business or pay for their children’s education. The problem that sometimes occurs with long-term planners is that they’re prone to changing these future goals. Since the future isn’t concrete, they might be easily swayed by any whim that comes their way. On Monday they might want to pay down their debt, but on Tuesday they may pursue a lucrative career in real estate.
The solution to both of these behaviors is having clear-cut goals. It’s best that you sit down and write out your short- and long-term plans. These don’t have to be complicated plans; you could probably make do with a few lines scribbled on a notecard. But actively putting your goals on paper will help you stay on track.
You’re Overestimating Your Returns
The financially savvy are natural planners. But when they’re estimating their return on investment of their financial plans, they often shoot a little too high. This is especially true with the stock market, where you’ll hear a wide range of claims for the “normal” expected. When in doubt, expect your earnings to be on the conservative side, especially if you’re new to the world of investments. Yes, the historical data surrounding the stock market is very encouraging, but don’t consider their estimates to be a guarantee. You should consider diversifying further, putting some of your resources into other types of investments.
You’re Not Being Patient
Becoming a financial expert takes a lot of time and diligence. That being said, there’s also a great deal of waiting involved in accumulating wealth and financial freedom. For example, if a person’s goal is to save up for a new home, a little of their time will be spent planning, while the majority of their time will consist of waiting and actually saving money. For some of the financially savvy, the planning stage is exciting, but they have a harder time during the slow, less stimulating periods.
Be on guard for this get-rich-quick mentality. In most situations, accumulating wealth takes a great deal of time and patience. We get rich slowly. Come to terms with this and appreciate your steady gains. You might also set some micro-goals for yourself, which will give you the opportunity to celebrate smaller, although no less important, successes.
Are You Financially Savvy?
For the financially savvy, money management is a regular part of their day. Being aware of these classic pitfalls gives them the power to continue down the path toward their financial goals.
Do you want to be part of the financially savvy? With a little bit of practice, anyone can be a pro at their finances. Subscribe today to get the latest money advice from the Zing Blog.
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