A particularly good article
I normally hate those 'top 10 money mistakes you can make' style articles, but this one is really pretty good. It's hard to fault any of the author's logic.
Personal finance is simple, really I promise. Whichever way you look at it, you can boil it down to:
1) Make a living
2) Spend less than you earn
3) Invest some of the difference, regularly, religiously, relentlessly, starting as early as possible
4) Stay out of debt
5) Protect what you have.
This author's 10 money mistakes all encompass one or more of the above. Here they are in countdown fashion with my comments added:
10) Not having an emergency fund - although cash doesn't grow and isn't part of the long-term financial plan, it is absolutely critical to sit on enough. Depending on your circumstances, at the very least have 3 months of living expenses in cash. For some, particularly sole-earners with a family to support, that might be closer to one year of living expenses. There is no rule-of-thumb. Keep what you need to ensure you sleep well at night. Once you are over that, you need to start investing it so that it grows at more than the rate of inflation. Otherwise you are going backwards.
9) Neglecting to make a will - once you have made your wealth, you must protect it and ensure the people that you love are cared for.
8) Not having enough insurance - again, it's about protection. I rarely see people who are over-insured, under-insurance is more common. If you have family who are dependent upon your earnings, you need to make sure that their lifestyle expenses are covered for the rest of their lives.
7) Marrying the wrong person - yes, this can have serious financial consequences. We all know people who have divorced and it can be devastating financially. Suddenly there are two households instead of one.
6) Not saving - see point 2 of my 5 points above. This is where the majority of the population gets stuck.
5) Buying too much house - yes, yes, yes - I actually would put this closer to number 1. I have written quite extensively about this recently.4) Waiting to invest - women particularly fall prey to this one. There are many reasons why we wait (I talk about seven different reasons in my 'Your Life, Your Money' event) but it costs us dearly over our lifetime. Once you have the emergency fund in place, it's time to get started.
3) Being deep in debt - in my experience this is normally linked to number 5 and aside from the obvious financial implications, being deep in debt is one of the biggest causes of stress and it robs us of the opportunity to live a purposeful and meaningful life.
2) Not working to maximise your career - for women that could just mean asking for that pay rise and getting it, over and over again.
1) Over-spending - like I have said in the past, most professionals in Cayman don't have an earning problem, but many do have a spending problem. As we earn more, we spend more - we move to a bigger house, drive a nicer car, eat at fancier restaurants, stay at more expensive hotels. It goes on and on, and you end up on the hedonic treadmill - getting off is hard. If you can keep your spending in check as your earnings go up, saving and investing more as you move through your career, wealth and freedom are inevitable.
Conclusion: For the majority of us, the path to financial security and freedom is "living well below our means, by planning, saving and investing".