The biggest problem with people today is they are dependent on their job. They live on paycheck to paycheck life. Their dependency on a paycheck to paycheck will never make them think differently. Middle class and poor class people have bigger dreams, but they stay in the same place. The reason behind this is their lack of financial literacy. They always make some common financial mistakes that should be avoided. Our education system never taught us about how money works. That is the reason why poor people always stay poor.
Another big problem with the young age group (20-35years) people is that just after completing their graduation and roam around for a job. Doing a job is not a bad thing but doing a job with thinking, “there is no other way of income” is bad thinking.
We are human & making mistakes are in our nature. And making financial mistakes are the problem of a lack of financial education.
Here are some common financial mistakes that we normally do, and we should avoid these.
Till the time I was not a financially educated person, I suppose the rich people spend more. But when I realize the actual truth then this statement became wrong.
The truth is the poor & middle-class people spend more. That is a big financial mistake that we do. Ideally, rich people save more than 40 to 50% of their income whereas; the poor and middle class spend more than 70 to 80% of their income.
We must take control of unnecessary buying habits. (Read how money works? (Part-2)).
BUYING DEPRECIATING ASSETS
The biggest financial mistakes done by the poor and middle class are by buying depreciating assets. They do not know the difference between the assets and the depreciating assets. They purchase those things more whose value is going down over time. The most common depreciating assets they buy are Car/Bike/Mobile Phones & similar properties. (Read Best Income Generating Assets)
LIVING PAYCHECK TO PAYCHECK LIFE
There are two kinds of job doing people:
First, they start a job with thinking to stand on their own feet.
Second, they need a job and wanted to start their income and support their family.
For the second kind of people, I always advise to get a job & start some income coming in. But for the 1st kind of people, I advise, go do a job and get some experience and start side hustle & build your own business.
But the problem with them Is getting a steady income makes them comfortable. They do not want to spend more time after their job. Just because either they get tired or they are comfortable they do not want any other income.
They have a comfortable zone of getting a fixed salary every month also, more fear of losing their fixed salaries every month. So, they just got dependent on a paycheck to paycheck life. (Read Salary Increment Performance Decoding).
SAVING MONEY RATHER THAN INVESTING
We Indians generally have a habit to save money. Saving money for education/marriage / buy a new house. Money keeps in a bank account or fixed deposits & that is eroded by the inflation rate. We see an amount in fixed deposits with interest, but their actual value is not equal to that amount.
We should avoid these financial mistakes by investing this amount in some better instruments which yield a good return.
FINANCIAL MISTAKES BY NOT PREPARING BUDGET
We have a habit to live paycheck to paycheck life. That happens because we do not have any budget. We get salaries & our expenses get all our income. If we prepare a budget according to our needs than we have a chance to have some money left over for saving investing that fetch some returns.
Not having a budget means we do not have any control over our finances. Your budget helps you to get some financial goals on time. That you are struggling with preparing your finances then reading Budget Rule. Even so, we must stop these basic financial mistakes to live a financially independent life.
MAKING FINANCIAL MISTAKES BY NOT INVESTING
In the current world situation, investing is the necessity to create your wealth. If you are not investing your money then you will never be able to create your NET WORTH. The inflation rate will erode the value of your money day by day. Only investing is an instrument that can give more than a 15% return. Investing in the Stock Market is risky, but with proper knowledge, there is no risk.
If you are still making financial mistakes by not investing your money in the stock market, then this is the right time to correct your mistakes.
I hope you have read this whole article and every financial mistake that we do. In the end, I just add that the time is changing and if we are managing our money like are a parent and grandparent do, then it would be hard to create Net Worth.
We must make changes according to the environment and adopt a new methodology to create wealth that keeps with us for a long time.