You are born into a wealthy family. Money is not an issue. You are given a ludicrous amount of money by your parents, which is their way of expressing their unconditional love and affection to their children. Now that you have ample money on hand, you feel the need to spend them (and make others look like a sack of potatoes) to keep up with the latest fashion trends or surround yourself with the latest electronic gadgets. Live in the moment and cast asides the worries of tomorrow. After all, #YOLO.
You just got yourself a new credit card, so the first thing you do upon activating it is to access the Apple Online Store and purchase the new, strikingly thin 24-inch iMac with M1 chip. Your significant other expects you to buy her the best women’s gifts to ensure the relationship remains alive and intact. Live life like the end of the world is just days away and cherish the time before you officially become an “adult.” Yes? Hell no.
I have witnessed many young adults practising this money mindset. What this mindset is teaching them is that you should spend more than you earn. Over time, the amount of debt they have amassed catches up with them, and eventually, they would have to live for the rest of their lives in near-poverty circumstances. They would have to continue working on jobs that they never liked in the first place and before you know it, they were trading their time for money. However, such mistakes are totally avoidable. All you have to do is be mindful of some of the most common financial mistakes outlined below.
Financial Mistake #1: Believing That Nothing Can Break Your Finances
Oh really, now? Do you really think that nothing in this world can deliver a significant blow to your bank account? Be frank with yourself.
“Life insurance can help you prevent more burden to your family when you have suddenly taken out of the picture.”David Angway
You will cease to believe that you are financially indestructible when you suddenly land yourself on a hospital bed or are legally required to pay a heavy fine. Nobody is immune to accidents or sickness, and for that reason, it is crucial to have insurance, regardless of age. The importance of medical insurance cannot be overlooked, as your health will always come first.
Oh, I nearly forgot about car insurance. About that, without it, you are not legally allowed to drive a vehicle. However, do not opt for the insurance with the lowest price. Purchasing a comprehensive car insurance will protect you from damages resulting from natural disasters or car accidents. Although car insurance can leave a dent in your wallet, especially when you are young with little to no income, life insurance is not. Get your policy in as quickly and early as you can while you are still viewed as “low risk” as premiums will be much lower.
Financial Mistake #2: Running Into Debt
If you are running out of cash to buy your essentials, you are perhaps more inclined to walk into a bank and register for a personal loan. My advice? Never borrow money.
“Every time you borrow money, you’re robbing your future self.”Nathan W. Morris, author of The Art of Getting Money
If your financial portfolio does not permit you to buy a car (let alone a house), keep saving your money. Do not underestimate the destructive power of interest rates. Once you take out a loan, you will be paying back your debtors for a significant period of time to come, especially if you do not have a steady inflow of money to keep you afloat. You would agree when I say that it is better to be debt-free and act broke than looking good while struggling with large debts. Talk about a way to kill your dreams.
Suppose you do get yourself into serious financial hardship. In that case, you must take drastic measures such as cutting unnecessary expenses and automating your financial portfolio so that every month, a small portion of the money you receive will be used to pay your debts. If you decided to obtain a credit card, pay your debtors back in full and punctually. It is also worth noting that you should not use swipe your credit card recklessly. Loan companies will keep their eyes on you when you are young, thinking that you are someone who will easily listen to and accept their sales pitch. Be wise and learn to live more with less until you are in a better position to own that dream car of yours.
Financial Mistake #3: Not Thinking Long-Term
As mentioned earlier, a lot of people like to spend on themselves in the present. The image of themselves in the future is just an illusion. “Why should I sacrifice my present for the sake of my future self that has yet to come?” is the most common excuse as to why young adults are spending money like there is no tomorrow.
“Not money, not skills, but time is the biggest lever for massive wealth creation.”Manoj Arora, author of The Autobiography Of A Stock
Let’s be honest, just because you do not know what will happen to you tomorrow does not mean you should completely deplete your bank account today. You have a long future ahead of you, so emptying your bank account in the present will not benefit you in the long run. Instead, create a set of financial goals and begin your journey towards a stable financial future by saving as much money as you can. It is not a bad idea also to seek advice from people who have taught themselves a high degree of financial literacy. They can offer you ideas on how to ensure your seed of wealth continues to grow with time.
Do you want to purchase a car? Save the amount of money you initially reserved for the next iPhone model coming out later this year. Are you planning to get married? Remember that you will need to make expensive commitments such as a ring and a house. How much better your tomorrow will be hangs on how much savings you have accumulated today.
“I know I can earn more money in the future, so why should I take a conservative approach with the amount of money I have?”
Alright, I trust you. However, what if that vision of yours does not pan out? What are you going to do next?
Having a plan to save and a budget to follow shield your future. Money has a notorious reputation for influencing people’s emotions and turning wealthy individuals into spoiled brats. When you have lots of money, the most common response would be to brag about your wealth and prove it by wearing the most expensive running shoes you can buy. When you are struggling with your finances, you are more likely to worry more and feel hopeless about your future. The takeaway here is that you should control your money, not the other way round.
I am aware that there are many more money mistakes out there but I do not want to make this story too wordy. Before I sign off for the day, my advice is this: treat your money like a lover. Do it right, and it will keep coming to visit. Be wise with your expenditures, and the journey of life will be smooth and bearable.