I find it fascinating that man in general, and, I specifically make the same mistakes repeatedly, sometimes at nausea. Why are we unable to recognize our blunders and rectify them quickly and make a new plan.
In the book, The Fourth Turning, we are reminded of the cycles of man. We see that we repeat the same mistakes generation after generation. I highly recommend reading it.
We say, “This time it is different,” but with a few simple clicks through the lane of history we can see that we continue to make the same mistakes and have done so for centuries.
For example, did you know that every 80-120 years the banks have collapsed going back to the war of the roses (the 1540s)? We should have learned from these failures, but we haven’t. We would benefit from reading more history.
Knowing this, we must have a plan to have different outcomes. With this in mind, I compiled a list of the financial blunders that I’ve seen myself and others make repeatedly. I boiled them down to three main points, which I think should never be forgotten.
Responsible adults should note and teach these best practices to their friends and family. See if you agree if this simple list would make for a more stable financial life or not.
“Never lose money.” — Warren BuffettThis means know where it is and where it goes.
The 3 Financial Blunders to Avoid like the Plague
- Having no financial plan or goals
- Buying liabilities before setting aside funds to buy assets
- Borrowing money to make purchases
Let’s start with #3 the most common non-millionaire practice – Borrowing money. The need to borrow money is a weakness that the undisciplined have come to rely on. We’ve forgotten how to “save up for” and pay for those things we want or need. Saving is a skill we need to relearn.
Discipline is the skill the wealthy have that the non-wealthy need to learn. In Everyday Millionaire, we learn the millionaire best practice – 95% of millionaires save and pay cash for expenses. Learning to save money has been one of the best lessons I’ve learned as an adult.
Why can’t we heed this sage advice, “save up and pay cash for your expenses”? It is apparent in our lack of spending discipline and our lack of savings that we don’t follow this advice. Why do we find it so hard to wait for the things we want now? I believe it is mostly because of the media we consume. I know this, if we were to pause and consider being our own banker, we’d discover that the benefits are rather astounding.
- Dependency would be eliminated. We’d have savings thus taking care of our own immediate needs.
- Independence would be increased. We wouldn’t have to work for the paycheck but instead we’d work towards our financial goals.
- Opportunity would be increased. We’d have savings that could be used for that unexpected expense or we could use cash for that desired purchase that was too good to pass up because we had savings and could wait to make purchases.
- The ability to help others would be increased. We’d be less focused on our problems and stresses and have money to help a friend, neighbor or community member.
- Freedom would be increased. We’d be secure enough in our personal life and have the ability to focus more on the needs of our community, country or the world.
Most of us only know the bondage of borrowing money. We want something that we cannot afford so we go to those who will lend us the money. We may try a family member first or use a credit card and justify with something like, “it’s only $350/month.” But, this never works out. A month or two down the road your car breaks down and you need $350, which you don’t have anymore, because of the “it’s only $350/month” payment you have, which is all or most of your disposable income.
A lesson learned from the wealthy is that using a credit card because you don’t have enough money is not a wise decision. Because we haven’t been taught that using a credit card leads to irresponsible management of money – we think we are getting something for nothing, but we are not. It leads to debilitating habits.
If you want to build wealth, stop taking out loans. No more HELOC loans, 401k loans, co-signing for others on a loan, buying anything on credit (cars, boats, motorcycles, RVs or other toys). Not saving up for large purchases and or paying minimum payments on loans you already have are money-losing strategies that should be eliminated.
Getting out of debt, staying out of debt, and saving for expenses are hard lessons to learn, but they are the lessons that lead to wealth. 82% of millionaires have no car payment. Learn this lesson from the wealthy.
“You can’t get rich when everything you own is going down in value!” — Dave Ramsey