Are you making any of these 5 mistakes with your money?
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Part of becoming wealthy involves cultivating a mindset that attracts more money into your life is crucial.
This starts with avoiding the common mistakes that people often make with their money. Let’s look at five of these mistakes, and how to avoid them.
Mistake #1) Be careful with credit cards.
Credit cards may be helpful, but a lot of people tend to misuse them.
And the reason why is this. When you use a credit card, it doesn’t really “feel” like you’re losing money.
Since you’re using credit, your bank balance remains untouched. But when you use cash to buy something, that cash is gone immediately. You can see and feel the loss of cash.
This is exactly why most credit card owners end up knee-deep in debt. They don’t feel the immediate loss, so carelessly swipe away with their credit card.
It’s only when their statement arrives at the end of the month that they realise they’ve spent more than they should’ve.
Even McDonald’s found that, when people used credit cards, the average meal order was $7. But when cash was used this amount reduced to $4.50.
Be well aware that a credit card is what it is, credit. It’s borrowed money. So if you can’t afford to repay what you’ve borrowed, then you shouldn’t use it in the first place.
Only spend money that you are confident will be paid back.
Mistake #2) Don’t be afraid of debt.
Debt is neither bad nor good, but rather a double-edge sword.
For example, if on Monday you receive a $50 phone bill, but can’t cover this until you get paid on Friday, then you can cover this bill with a credit card.
Doing this allows you to cover the bill on time while avoiding any late fees. Then when you get paid on Friday, you can repay the balance on your credit card.
Debt can also be helpful if you run a business.
For example, you can use a credit card to cover any day-to-day costs (inventory, marketing etc.) while waiting for any funds to arrive in your bank. While this temporarily puts you in debt, it’s essential to keep your business running.
In both examples, credit cards are simply a tool to manage your cash flow. But the benefits go beyond this too.
Becoming credit-savvy increases your credit score. And there are certain credit cards that even allow you to earn travel points and other rewards, as Sarah explains in this video:
When it comes to credit, use it wisely.
Mistake #3) Don’t be afraid to spend money.
For many of us, it’s fair to say covid-19 has taught us a valuable life lesson.
Nothing in life is guaranteed, and you can’t predict the future.
The truth is, though your goal is to be wealthy someday, the only day you have is today.
It’s not worth living life “frugally” and clinching onto every penny you have. While it’s good to save, there needs to be a balance. Don’t become a cheapskate to the point where you can’t even enjoy life anymore.
Remember that you can do both. You can save and spend money. You can put money aside to grow your wealth, while also spending it on things and experiences that make you happy.
Never assume that you will have tomorrow. Tomorrow is never guaranteed, and Sarah’s life-threatening story can attest to this.
Mistake #4) Buy experiences, not “stuff” you don’t need.
But also remember that spending money doesn’t make you happy. Rather, it’s what you choose to spend it on that determines how happy you feel.
Take the following study as an example.
A group of college participants were given $40. They were then told to spend it on something materialistic, like a hoodie or trainers.
The next week they were also given $40, but this time were told to spend it on a service that would save them time (cleaner, meal prep service etc).
After each purchase, the participants were asked to rate on a scale of 1 to 10 how happy they felt.
The results? People felt happier when their $40 was spent on a time-saving service, in comparison to materialistic things.
When you buy back your time, you can spend it on experiences that bring happiness into your life. For example, travelling the world, visiting a friend, or simply reading a book.
Buying more “stuff,” however, doesn’t save any time. You may experience that initial dopamine boost when you buy that car, but it’s not sustainable happiness. And in order to maintain that boost, you’ll have to keep spending more money on more things. If you’re not careful, then this can lead to an unhealthy cycle where your happiness depends on the stuff you buy.
The takeaway is this. While it’s okay to spend money on materialistic things, make the conscious effort to also spend money on experiences. Because this is what brings true happiness, not the clothes or shoes you wear.
Mistake #5) Don’t feel pressured into spending thousands of dollars on university.
Many of us, after high school, make the ‘default’ choice to attend college.
For a lot of people, they give into societal pressure to attend university. They hear it from their mum and dad. They see everyone else is going. So they think, “Hmm, I may as well go too.”
The problem here is that, if you attend university without a plan of how you’re going to secure a well-paying job, you’ll just be racking up a load of debt (plus interest) that you’ll need to pay off.
If you aren’t going to secure a job related to your field of study, then is it really worth going in the first place?
If you’re a student, or wish to go to university, then ask yourself this question:
“Will this degree help me to achieve my long-term goals, or am I just doing it because society is pressuring me to?”
If you’ve already spent a few years at university, you might even feel as though it’s wiser to complete your course than to quit.
This is what can be referred to as the “sunk fallacy” trap, the urge to continue something you’ve already committed a lot of energy to. However, just because you invested a lot of time into a mistake, doesn’t mean you need to carry on clinging onto it. Even in her final year, Sarah made the bold choice to quit university. And she hasn’t looked back ever since.
Before you attend university, make sure it’s not because you feel pressured to. Only study at university if it’s something you genuinely desire.
The Bottom Line
Money is nothing but a tool. It’s our mindset around it that determines whether we become wealthy or poor.
Using the tips outlined in this post, you’ll be able to avoid the common money mistakes that stop most people from getting ahead financially. And this ultimately leads to more money, freedom and happiness.