5 Money Mistakes That Prevent You from Becoming Wealthy

Question: I have been working in the corporate world for some time now and it has always been my dream to go into entrepreneurship someday. Though I enjoy good pay from my company, I can’t seem to save enough money to start a small business. What should I do? Please advise. – Fritzy

Answer: One of the most common reasons why some people cannot save enough money is this – their lifestyle simply adjusts upwards whenever they have an increase in income.

The more income you earn, the more you spend. Somehow, there is this psychological comfort that makes you feel financially secured when you are earning a lot of money. Spending money makes you feel rich until you realize that you have nothing in the end.

If you are wondering why you are not saving enough money, try to take a closer look at how you are handling your finances. You may be doing the five money mistakes I list here that are keeping you from achieving financial security.

1. Not controlling expenses

Your journey to financial independence starts with having the right financial mindset. When you are determined to achieve certain financial goals in life, your mindset will dictate your spending behavior.

One way to control spending is through budgeting. When you budget your expenses, you will be able to plan how much you want to save first and how much you plan to allocate for your expenses. Make a budget by projecting your expenses in a spreadsheet. Monitor this by tracking your actual expenses and comparing it with your budget.

When you see how you are doing against your budget, you will have better appreciation of what you spend. A budget is a useful tool for decision making and evaluating your spending decisions. Although you may need to spend more than your budget on some items at times when it is necessary, the purpose of having a budget is to guide you and help you spend according to your priorities.

2. Not fully settling credit card debts

Credit cards are great source of free credit when used properly. It offers a convenient substitute to carrying large amounts of cash when you go shopping. The key is to avoid tolerating how credit card companies make money from you from their interest charges. When you pay the suggested minimum payment, you already agree to pay interest to them at an unreasonably high rate.

For example, there is a particular credit card company that charges an interest rate of 3.25 percent per month. Do you know that this translates to 39 percent a year? If you follow this by paying the minimum, the difference will be simply added to your balance. The longer it takes, the bigger your debt balance will become as your unpaid interest accumulates over the months. In fact, for as long as the minimum payment is lower than your interest, it will take you forever to settle your debt fully.

3. Not having a personal finance plan

A goal without a plan is just a dream. When you have financial goals in life, you need to write it down and put it in a plan. If your goal is to go into business someday, you need to put a financial value to your goal. How much do you need to save in order to achieve your goal? How long will it take you to achieve the goal at the rate you are saving? If it is not enough, what will be your alternatives to achieve it? Should you lower your financial goal or find other additional sources of income?

When you have a personal financial plan, it helps you monitor your progress. You will find ways on how to grow your savings to achieve your goal. Your plan to go into business will just be one of your financial goals that will be part of your plan. You will also be able to incorporate other goals such as helping with the future education needs of your loved ones, paying your personal debts if there are any, and having a retirement plan.

4. Not planning for unexpected investment losses

There is always risk that you will lose money in every investment. If you are a risk-averse type of a person, meaning you avoid risk as much as possible, you can simply invest your money in government guaranteed investment instruments. However, such investment vehicles will give you only the minimal return and may not be ideal if you are looking to grow your money at a faster pace.

If you want higher returns from your investment, you need to take bigger risks. Some people who tend to be more aggressive in investment and take more risks in their ventures may also lose their money in the end.

When you manage your risk, you need to diversify your investment. Allocate your investments among various instruments with different risk profiles. Manage your risk to the point that you achieve the right return you are most comfortable with.

5. Not investing in personal finance education

Becoming financially literate helps you make smarter decisions about money. For example, should you invest your money in interest bearing bonds or preferred shares? Is it good to borrow money to invest in real estate? How long should you hold your investments? These are some of the things that you need to learn in order to answer these investment questions.

If you feel that you don’t have enough knowledge and understanding about making financial decisions, you need to educate yourself. Read books on investment and personal finance. Do not hesitate to invest in training and seminars on financial planning. The returns on continuous investment in personal finance education will more than compensate for the cost of your money mistakes.

*****

About the Author

Henry Ong, CMA, CMC, is president of Business Sense Financial Advisors and Regional Director for CMA Australia – Philippines Branch. Henry can be contacted on [email protected] or follow him on Twitter, @henryong888.

About Prof Janek Ratnatunga 1129 Articles
Professor Janek Ratnatunga is CEO of the Institute of Certified Management Accountants. He has held appointments at the University of Melbourne, Monash University and the Australian National University in Australia; and the Universities of Washington, Richmond and Rhode Island in the USA. Prior to his academic career he worked with KPMG.
Scroll to Top