5 Money Mistakes You Might Be Making

If you are making any of these financial mistakes, try and retrace your steps – better late than never.

The road to financial freedom is not for the faint of heart. You need to make smart decisions if you want to achieve your goals in the long run.Today, we’ll be looking at some money mistakes people (especially those who have just left school and started out in their careers) make. These constitute a major barrier in becoming financially successful before retirement comes knocking.

Let’s get started, shan’t we?

Failure to start saving for your retirement on time

Most young people wait too long to start saving for their retirement. They keep waiting for the right time. But the right time should be now. If you find that you are unable to set apart a portion of your income without going right back to dip into it, don’t waste a minute to start identifying your bad spending habits and eliminating them.

Planning for retirement is a life-long endeavour. Think of it as a marathon. To arrive at your destination faster, you have to start on time and maintain a steady pace.

Retirement savings

Try putting at least 15% of your total income each year into a savings account. So if you earn N100,000 a month, you should have at least N180,000 saved up each year for your retirement.

Note that your retirement savings should be separate from your investment and emergency savings.

Here’s what you need to know:

In your 20s, you should have 1x your annual earnings saved up for retirement.
In your 30s, 3x your annual earnings
In your 40s, 6x your annual earnings
In your 50s, 8x your annual earnings
At 60, you should have 10x your annual earnings as your retirement savings.

If you feel you don’t make enough money to be able to save successfully, know that it’s a myth. There’s no such thing. If you are finding it difficult, all you have to do is adjust your habits so you can spend less than you make. There is always a way to cut back on your spending. But if you’ve tried it all without much improvement, setting aside as little as N4,000 a month is still progress.

Spending at the same rate you earn

Most people make the mistake of increasing their spending as their earnings increase, without saving and investing proportionately as well. They, therefore, end up being money conduits, and no matter how much they earn, nothing is left by the time the month/year runs out. No investments, no savings, and very negligible net worth.

Lifestyle inflation (increasing your spending as your earnings increase) is a trap you should avoid by all means. When you are young, it’s fun to live in the moment and enjoy life. But don’t forget to plan for your future or you’ll never attain financial freedom.

Millennials

If you get a raise, rather than go on an expensive trip or buy a new flashy car that obviously won’t yield income, and might even get you in debt, consider increasing your savings instead and make an investment.

Focus on the bigger picture. With the right savings and investment habit, you can grow your money and spend on more important things like taking care of your family, building a house, starting a business, and planning for early retirement.
Not being mindful of your health

In the HBO feature, ‘Becoming Warren Buffet’, while talking to a class, the Nebraska-based billionaire advised that you have only one mind and one body that should last you for the rest of your life. If you neglect to take care of it, you won’t be able to achieve your dreams in life.

To live long and avoid paying huge bills on medical treatment in the future, you need to start being proactive about your health. Maintain a healthy eating habit and have an exercise routine. Don’t fail to go for regular medical checkups. This will ensure that any health issue you might have can be identified early before it becomes serious.

Not having an emergency budget

Don’t make the mistake of having just one savings fund. Doing so would mean that you’ll have to dip into it when an emergency arises, in which case you have not saved successfully.

Have separate savings for your retirement, emergency, investment, and so on. Your emergency fund will come in handy if you happen to lose your job, get in an accident, fall ill, or have several other unforeseen situations. It is your safety net to keep you from falling into debt.

emergency budget

Typically, it should provide you with three to six months of living expenses that you can fall back on when you have no income stream.

There’s also something known as a rainy day fund. This should be separate from your emergency fund. It is meant for smaller, more predictable events, such as fixing your car at the mechanic or taking your child to the hospital.

Not making any investment

Investment is something you must not neglect if you wish to become financially free. Many people live out their lives earning a salary and paying bills, and failing to establish a source of passive income.

Granted, making an investment comes with its risks, stock market investments most of all. You won’t be able to control how the market behaves or your rate of returns. But you can control how much you want to set aside for the long-term and what you want to invest in. Try and diversify your portfolio. If you are unsure what to invest in, consider consulting a financial advisor.

There you have it.

If you are making any of these financial mistakes, try and retrace your steps – better late than never.

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