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  • Writer's pictureJohn Pearl

10 Personal Finance Mistakes That Will Keep You Stuck in the Rat Race

Financial literacy is a huge problem in the U.S. I have had to learn ALL of the points below the hard way and need a constant reminder to apply them. Financial freedom is a journey that can take many years. By applying some of these principles, you can cut down that time frame exponentially.

1) Buying things to make you appear to have more money than you actually do.

Keeping up with the Jones’ is a real problem. There is an unfortunate misconception that if we make a certain amount of money or hold a specific job title that we must dress a certain way, drive a certain type of car, or live in a certain neighborhood to be taken seriously. News flash: nobody cares! Shift your focus to purchasing cash flowing assets that will decrease your reliance on a paycheck. THEN, with the cashflow from your assets, you can purchase all that status symbols.

2) Not having a budget and monitoring weekly spending.

Do you know where all your money is going every month? Do you pay for monthly subscriptions that you don’t use? These little expenses add up over time. Ideally, you go over your personal finances on a weekly basis. If you can’t make the time to do this, monthly will suffice to start.

3) Failure to educate on different investment vehicles.

There are so many ways to put your money to work outside of traditional methods (401k, stock market, etc.). If you take it upon yourself to explore new methods, there are plenty of ways to make your money go further faster.

4) Paying yourself AFTER you pay your expenses.

Once you receive your paycheck, the first person you pay should be yourself. Nobody else. This means you either invest that chunk of money or set it aside with the purpose of investing it once you’ve stored enough. If you are thinking that your expenses are too high to pay yourself first, then you need to do one of two things – eliminate some expenses or find a way to make more money.

5) Having one stream of income.

Even if you are a full time W2 worker, you can still build up your streams of passive income. A great way to do this is by investing in real estate.

6) Poor credit card habits.

According to Lending Tree, the average credit card interest rate is 21.4%. You would be much better off to aggressively pay down your high interest debt prior to putting any money into an investment. Credit card interest can be crippling. Credit cards can also provide several benefits. Paying them off monthly is crucial to maximize these benefits and not get caught in an endless cycle of bad debt.

7) Financing new vehicles.

Unless you are a business owner and are using the cost of your vehicle as a tax write off, financing a new vehicle is an unnecessary expense. That same money that is being spent every month on the car payment could be used to invest in a cash flowing asset that will ultimately increase your quality of life and decrease your reliance on a paycheck.

8) Saving instead of investing.

Too many people are stockpiling cash in a savings account. It is important to have an emergency fund to cover 3-6 months of your living expenses, but anything in excess is unnecessary and is losing purchasing power by the second due to inflation.

9) Not having a long-term plan.

A long-term financial plan that has emotional meaning is key to help avoid meaningless expenses. When you have a vision for the way you want your life to be, you will be much less likely spend frivolously.

10) Being too risk averse.

The younger you are (especially 20’s & 30’s), the more risk you can afford to take. The key is to be calculated. Get educated. Build your network. Learn from others. The time to take the biggest risks with money is before you have a family depending on you and while you are still young enough to make up for it if it doesn’t go according to plan.

Money is not the key to happiness, but it sure can solve a lot of problems!

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