Many of us live almost half our lifetime earning a living for ourselves and our families. The years when we are employed — when we are at our prime and at the peak of our earning capacity — are the best times to achieve our financial goals, but those years are only limited. Time flies and the next thing we know, retirement is just a few New Years away.
While it is great to celebrate success and enjoy the fruits of our own labor, many of us forget about the life ahead after employment, and commit money mistakes that we regret later on.
What are these common mistakes? Let’s see if you’re familiar with the following.
These Are Some Money Mistakes to Avoid During Your Employment Years
– This is probably the number one culprit why so many employed people waste financial opportunities during their employment years. And you can often see this happen during payday when people tend to have happier moods and “celebrate” the inflow of cash to their payroll accounts. Before even the paycheck arrives, some already have a list of new items to buy.
Spending like your pocket is a bottomless pit of gold while your paycheck says otherwise is never a good idea. When you overspend, the least you could expect is living from paycheck to paycheck, which means an empty bank account.
But what’s worse? Living on credit cards.
Living on credit cards or borrowed money
– Credit cards are actually tools you can leverage for your financial health but they require great responsibility and tough discipline on your part. If you overspend on cash, you’d probably overspend on credit as well. The bad news is that digging oneself out of credit card debt is never easy. Most of your finances will be allotted to paying off those debts, instead of building your nest egg and investing for your future.
In fact, it’s not uncommon to see people still paying credit card debts during their 50s. That’s just a decade away from retirement — and we all know how hard it is to save when we are paying off debts.
Not having any financial goal
You all know the value of saving money for the rainy days. Every now and then, you hear yourself say “I need to save, I need to save.” But for the most part, nothing really happens. A year passes and your bank account still becomes empty every end of the month. Why? You probably have no financial goal at all.
Some people, on the other hand, are so good at saving money, but somehow still end up spending what they had saved. Why? They lack financial goals.
Saving too much and not investing at all
Saving is good but if that’s all you do to achieve your financial goal, you will be at a disadvantage because bank interest rates for your savings account cannot keep up with inflation rates. Currencies lose value as prices of commodities and services rise.
In other words, your money in a savings account cannot grow fast enough to have the purchasing power you will need in the future. Instead of putting all your money in your savings account, simply put your emergency fund there and build wealth using investments such as equities, bonds or even real estate. One simple way to do that is to participate in a 401(k) plan and contribute as much as you can.
Lifestyle upgrade after a salary increase
When you receive a salary raise, what do you first think about? Do you think of putting away money on your savings or investment account, or do you think of upgrading your cellphone, your cable subscription or your diet to gourmet?
Here’s the thing. If you upgrade your lifestyle or spending habits once you receive a salary increase, you will be wasting a good financial opportunity to build your nest egg. Your purchasing capacity may have increased but your capacity to build a better financial future stays the same. Time to change that mentality!
Buying liabilities instead of assets.
In our consumerist society, we are constantly being bombarded by advertisements of nice-to-have items that we don’t really need. These advertised items are often sleek and shiny and on sale! Add to that the pressure of keeping up with your neighbors and it will be very hard to resist the temptation of buying stuff whose value decreases over time.
These are called liabilities — the exact opposite of which are assets.
Many of us, however, don’t care about assets and net worth because we feel they are only for the rich. But that isn’t true at all. In fact, you can acquire assets simply by investing part of your salary every month in securities so that by the time your employment years are over, you’ll be able to live the lifestyle you are used to living.
Limit the liabilities you acquire, and you’ll be able to increase your ability to acquire assets and therefore increase your net worth.
Rushing into buying properties
Properties are status symbols and badges of financial success, that’s why some of us rush into buying one. We want to show that we are now on our own and made it to the “real world”. So we take out big loans to cover these purchases but oftentimes we don’t take an honest look at our financial shape. Can we really afford that purchase? If yes, how much of our net income can we allocate on our mortgage without living from paycheck to paycheck? Oftentimes, we believe that properties are de facto investments, and realize only later on that they are actually expenses that are giving us headaches.
We underestimate emergency funds until the actual emergency happens. Credit cards can be a short fix to emergencies such as house and car repairs and groceries, but it is never advisable to be dependent on them. Can you go on living in case you lost your job or got hit by a pay cut? Can you still go out and find a new job in the next few weeks or months? If you can’t, then you’re living on the edge and it’s time to start building that emergency fund. A lot of us become too complacent given the tenure we have on our jobs so we don’t give any importance to emergency funds. Well, we probably need to pay attention to the lessons of the 2008 crisis.
Being too kind
Charity is a good thing, both for the receiver and the giver. Moreover, it gives you a feeling of abundance and contentment in your life. However, some people give way too much of what they have and leave nothing for themselves. Some would even take on debt after debt to help. End result? They are often broke. The thing is, you cannot help a brother if you cannot help yourself. What you need to do is set a limit for helping others, while building your financial stability and asset base. When you already have built an asset base, that’s when you can afford to be too more generous.
Not eliminating debt by 40s
Life begins at 40, so they say. Many of us are already done with big ticket items like weddings, cars and houses, and kids’ education. It’s the best time to enjoy our lives. But it’s the also the time when you should have eliminated your debts, especially credit card debts, because they will be a hindrance to your finances as you approach your 50s and onto your retirement years. You wouldn’t want to be paying off debt with a limited income.