A Costly Money Era Has Arrived — Avoid These 5 Financial Mistakes
Avoid These Common Mistakes That Destroy Wealth
The simplest way to have some extra money without doing any additional work is by avoiding dumb decisions with your money.
Some of these dumb decisions are going to be obvious, like financing your extra guac on your visa.
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Some of these decisions are not going to be obvious, and I’m going to talk about five of them in this article.
1. NO PRIORITY FOR YOURS $
Babies have to crawl before they can walk, before they can run. When it comes to money, a lot of people are running before they even learn to crawl.
In the financial world, if you have credit card debt, payday loans, or high-interest types of debt, you are in the crawl phase.
And when you have this type of high-interest debt, you should not be worried about trying to invest your money in the stock market.
You should not be worried about trying to save a whole bunch of extra money. Your sole focus needs to be on paying down this credit card debt.
So, if you have high-interest debts and you’re worried about investing in stocks, your priorities are in the wrong place.
The first thing you’ve got to do is pay down this credit card debt because your credit card debt is going to cost you 15, 20, 25, sometimes 28% a year in interest.
When you invest your money in the stock market, well, the average stock market return is 10% a year. 10% is smaller than 20%.
So, pay off your credit card debt first and don’t worry about doing all the other stuff. Crawl before you can walk.
When it comes time for you to walk financially, you’ve got to have at least $2,000 extra put aside in a separate bank account just to protect you against emergencies.
That’s not $2,000 for a car, $2,000 for a watch, or $2,000 for a security deposit. This is an extra $2,000 in case you lose your job, in case your kid breaks a leg, or in case your AC goes out. You have an extra $2,000 put aside just in case.
If you don’t have this $2,000 put aside, you should not be worried about investing in stocks. You should not be worried about trying to flip real estate or investing in real estate with zero money down.
What you need to be focused on is saving this $2,000 as fast as possible. Work to save some more money by living smaller. Work to earn some extra money by working extra hours. But you’ve got to get this $2,000.
And then when it comes time for you to run financially, this is where you’re actually acquiring assets.
You’re investing your money. And if you don’t have any assets, listen, you don’t have to worry about asset protection. You don’t have to worry about building these tax strategies.
You don’t have to worry about doing all this legacy stuff because you have no assets to protect yet.
It’s one of the funniest things when someone’s got $44 in the bank account, and they’re talking about tax strategies and how they can pass down their wealth.
You don’t have any assets to pass down yet. So, get the assets, then worry about the asset protection.
2. CREDIT SCORE DOES NOT RICH
Thinking your credit score is what makes you rich. There’s an entire industry of people, especially on the internet, that love to sell you this idea of how having an 800 credit score is going to open up the opportunity for you to build all this wealth.
And unfortunately, this industry is selling primarily to poor people, people who don’t have money, people who are struggling, and people who don’t have a good credit score.
Here’s the reality. Your credit score really does not matter. All it is is an indication of how good you are at paying your bills, and it doesn’t even do the best job at that.
- Your credit score is not an indication of how wealthy you are.
- Your credit score is not an indication of how many assets you own.
- Your credit score is not an indication of how much money you have in the bank.
- Your credit score is not an indication of the degree you have.
- Your credit score is not an indication of how good your job is.
All your credit score tells you is how good you’ve been at paying off your bills, and again, it hasn’t done the best job at even explaining that.
That being said, can a better credit score help you? Potentially. But here’s the part that so many people are doing wrong. Remember, this credit score helps people buy more debt.
And if you’re using this debt to buy liabilities, this doesn’t do you any good.
You got an 800 credit score, but all you’re doing is working your job so you can pay off your car, so you can pay off your watch, you can pay off your house, so you can pay off your fancy vacations.
That 800 credit score shows you, hey, you’re making payments, but yeah, you’re broke. This is where, yes, a better credit score can help you get a cheaper mortgage, but that’s really it.
If you want to go out and buy a car, buy it for cash. Your car is a depreciating liability. It’s going to lose value as soon as you put the keys in the ignition.
Your car is going to need maintenance.
Your car has a limited time span,
so why pay interest on something that’s losing you money? Buy a car with cash.
Maybe you can’t buy as nice a car, but buy it with cash. You should not be using your credit score to finance your vacation to Cancun, and you should not be using your credit score to pay for your wardrobe.
So, can your credit score help you when it comes to buying a house? Sure, but you don’t need a good credit score to actually build wealth.
3. LIVING FAKE RICH
Living fake rich. An asset is something that puts money in your pocket. A liability is something that takes money out of your pocket.
And Robert Kiyosaki, author of Rich Dad Poor Dad, famously said that “The majority of people are working to buy liabilities that they think are assets.”
And so what does that mean? The majority of people are trying to look rich.
- We want to have the big house.
- We want to have a nice car.
- When you get a nice job, you want to show it off because you got a nice job.
- You’ve got to have the BMW.
- You’ve got to have a nice apartment.
- You’ve got to have the nice penthouse.
- You’ve got to have the nice big house with four bedrooms and two baths because you’ve earned it.
But here’s the reality. What you’re doing many times is you’re making everybody else rich except yourself.
As soon as you make money, your money is going here. Well, what wealthy people want to do is they want to own the assets that put money in their pockets.
Your BMW is not putting money in your pocket.
You’re putting money in BMW’s pocket, and you’re putting money in your bank’s pocket.
Your house, for many people, does not put money in your pocket.
You’re putting money into your mortgage company’s pocket. You’re putting money into the insurance company’s pocket.
You’re putting money into your property taxes pocket. You’re putting money into the maintenance pocket.
You’re putting money into the utilities’pocket month after month after month after month. And then you have to hope that your home is going to go up in value.
And what we know is that houses don’t always go up in value. I got my real estate salesperson’s license almost a decade and a half ago now.
And one of the things that you learn when you are a real estate salesperson is you want to learn how to sell a house. But what you’re not selling is a house, you’re selling a home.
And more specifically, you’re selling the biggest investment that most people will ever make.
And when I can tell you that your home is one of the biggest and best investments you’re ever going to make, it’s going to be a little bit easier for you to buy a little bit bigger and a little bit nicer because you’re buying an investment for your family.
You’re buying an investment to build that generational wealth, to finally own that house.
And your mortgage banker is going to tell you the same thing. This is an investment. Your house is going to go up in value.
It’s going to help you get rich. It’s going to help you have an asset that you can pay off and pass down to your kids.
But the problem with that is, well, number one, if your house does go up in value, now your property taxes and insurance go up.
So, you have to make more money to make those payments. And if you don’t have the salary to support the higher payments, well, you’re stuck.
As soon as you sign the paperwork, your mortgage banker and realtor are gone. They don’t care if you make the payments or not. They just want to get their commission check because once you sign the paperwork, they get paid.
And not to mention, well, you have to pay for everything in the house every month that you live in there. And then you have to hope that your home goes up in value.
I’m not against you buying a house. In fact, I think it’s a very good thing for you to buy a house when you can afford it. But the key is to buy a house that you can afford.
And that’s why the rule that I like to follow is a very simple 10, which says for every dollar that you earn from here on out, 75 cents is the maximum that you can spend.
This is all the money that you can spend on your mortgage, on your groceries, on your vacations, on your clothing, and everything in between.
15 cents is the minimum that you’re investing in every dollar that you earn. And 10 cents is the minimum that you’re saving from every dollar that you earn.
That means you can only spend three-quarters of every dollar that you earn, and the other quarter, you’re investing into yourself by making yourself wealthy and by saving that money. This way, now you can work to actually build wealth for yourself.
And if you can afford a house in this, then be my guest and buy that house that you can afford, because now you still have the money to invest.
The mistake that so many people make is that people buy a big house, thinking that this house is their investment.
My investment is my mortgage payment, when in reality, that mortgage payment is just making your banker richer.
Because what happens when you get a 30-year fixed-rate mortgage is that for the first 15 years out of 30, more than half of your mortgage payment is going to be interest.
So, if your mortgage is $3,000 a month and you start the mortgage payment today, it’s not half of your payment going towards principal and half going to interest.
If you look at an amortization calculator, what you’ll see is that almost all of that $3,000 is going into interest in month one, month two, and month three.
And it isn’t until year 15 that half of your mortgage payment is going towards your principal balance, and half is going to interest.
And so these loans are front-loaded. And if you refinance your mortgage, well, you start that process all over again.
That’s why I want you to understand how this works. And don’t treat the house as an investment. Buy actual investments, rental properties, stocks, and businesses as your investments. That way, you can actually work to become wealthy.
Because a lot of people want to look rich. You’re taking your money, and you’re buying that lifestyle.
You got the nice car, you got the nice clothes, you got the nice house, but you have no actual wealth.
I want you to actually become wealthy. That way, you can have the freedom for yourself.
4. NO INVESTING IN SELF
The fourth dumb thing is kind of counterintuitive, but you don’t invest money in yourself. So, this is where you finally have some money.
You got some money in the bank, and now you want to be protective of it. You want to protect that money at all costs, so you don’t want to get rid of that money, you don’t want to spend it.
But sometimes not spending money can be more expensive than actually spending that money.
Because when you don’t want to spend that money, you don’t want to pay somebody else when you can have your own time.
I see this so much in real estate. If you were to go out and invest in a rental property, you could be the one who manages the property, because now, when the tenant has an issue, yeah, you could take the phone call and deal with the issue.
You can be the one who makes sure the bills get paid. You can be the one to make sure the property taxes get paid.
But I don’t want to have to do that. I don’t want to manage my properties. I want to be an investor. And this is where I pay to have a property manager.
Now, this property manager is going to have a fee. They’re going to take a percentage of your rents every single month.
And a lot of real estate investors will say, ” Why the heck would I pay a property manager 8% of my rents, 10% of my rents, 12% of my rents?” That’s money that I could keep in my pocket. It’s just a little bit of time every single month, I can just deal with it myself.
But now you’re not valuing your time, and then you’re never going to be able to scale.
Because if you have a few more properties, well, you are spending all of your time managing, and you’re not going to want to scale to the next deal because you’re going to be fed up with dealing with tenants and dealing with the headache and dealing with the problems.
Managing is very different than owning. I want you to be an owner. That way, you can work to build that wealth.
- Maybe that’s with mowing your lawn. You don’t want to pay somebody to get that hour back every single week.
- Maybe it’s for cleaning.
- Maybe it’s for driving you around.
- Maybe it’s for helping to cook food. That way, you can save some of your time.
- Maybe it’s you investing that money into your own mind because you say, you know, I work so hard to save up these few thousand dollars, $5,000, this $10,000.
I don’t want to invest this money into a book or a class or some research reports or whatever because if I spend $500, that’s $500 to leave my bank account.
But if you can invest in your mind, spending $500 could help you earn $5,000, maybe $5,000 a month, depending on what you’re learning.
But you have to be willing to invest in your own mind. That way, you can learn how you can grow your mindset.
Because a lot of people have this scarcity mindset where we think,” Oh my god, if I spend $500, I’m losing money. But what if you can spend $500 to make $5,000?” This is that growth mindset that some people have that can allow you to reach much bigger heights, but you have to be willing to actually spend that money and know when it’s okay to let go of that money if it’s going to bring you more value in return.
And then of course, you have to be willing to spend that money to grow your money. And I’m not talking about investing in your own knowledge, I mean to actually invest your money.
A lot of times, I’ve come across people who have money in their bank, but they don’t want to invest it because investing is risky.
And I’ve come across some people, particularly high-income earners like doctors, who will have six figures, hundreds of thousands of dollars, sometimes even millions of dollars sitting in the bank earning 0.5% a year because they don’t want to take this money and invest it into the stock market or into real estate or into really any asset. After all, what happens if markets crash, what happens if I pick a bad investment?
Investing is risky. You’re never guaranteed to make money when you invest. You will lose money at some point, which is why you need to make sure you always do your own due diligence and never blindly trust a random guy.
But here’s the thing. When you save your money in the bank, you’re guaranteed to lose. Because if you’re earning half a percent a year, even 3% a year, you’re still losing money.
Because if you’re earning 3% a year in a high-yield savings account, the first thing is you’ve got to pay taxes on that money, so you’re really not netting 3% a year. And now you have to factor in inflation.
And you might say, well, even after taxes, just right, I’m earning more than 2% a year on my savings, so I’m beating inflation.
But remember, the 2% inflation numbers that we’re seeing are the reported inflation numbers.
That doesn’t mean it’s the real inflation that many people are feeling, because the real inflation that a lot of people are feeling is higher than the actual reported numbers.
Which is why when you save your money, even in a high-interest savings account, you’re guaranteed to lose.
Now, when you invest your money, you can lose. You can lose every dollar that you invest, but you have the potential to gain money as well.
And if you just invest your money into something simple, like say the total stock market or the S&P 500, which is a group of the 500 largest companies in the stock market, and yesso me funds allow you to do this, you don’t have to go out and invest in every single company.
There are funds like VTI that give you exposure to the total stock market and SPY that give you exposure to the S&P 500.
Now, I’m not recommending that you go out and buy these. I can’t do that because I’m just a random guy.
But what I’m saying is if you just wanted to invest your money in the stock market for the long term, this has been proven to win over the long term.
Now, this doesn’t guarantee that you’re always going to make money. In fact, we’ve seen a lot of recessions in the past, and we’ve seen a lot of market crashes in the past.
We’re going to continue to see market crashes, we’re going to continue to see recessions, but history tells us that in the long term, markets go up.
Now, could that be wrong in the future? Sure, yeah, maybe. But that’s what history has told us. But you’ll never have the opportunity to see the potential upside if you never invest your money.
5. INVEST LIKE YOU’RE IN VEGAS
And then the fifth dumb thing that you can do is invest like you’re in Las Vegas. Investing your money like I just talked about is a slow but almost guaranteed way to build wealth over the long term, not over 6 months, not over 5 years, but over 10, 20, 30, 40 years.
It has been proven, and it’s a pretty sure way, not 100%, but a pretty sure way to build wealth.
But a lot of people look at that and say, “ Well, I don’t want to wait 30, 40 years to build my wealth, ” and wonder if there’s something sooner.
And if you’re getting started and you don’t have a lot of investing experience, you’re going to start googling different ways that you can start investing money, how to grow your money faster.
And now you’re going to start learning about these other opportunities that can double your money in 6 months and get you these 1,000% returns.
- Maybe start investing in pink sheets, meaning penny stocks.
- Maybe start day trading.
- Maybe start looking into options.
- Maybe you start trading meme stocks.
- Maybe start trading these hot cryptocurrencies that have the potential to pop off.
These are super speculative investments, which, yeah, they can have a small piece in a regular person’s portfolio, but what I’ve seen happen for a lot of smaller, younger, getting-started investors is their entire portfolio is 100% speculative because we don’t like the idea of waiting 30 or 40 years to see wealth happen.
So instead, let me just try to yolo my money into these dumb investments and hope for the best.
And now what ends up happening is you hope you’re going to get rich quickly, you end up losing all of your money, and you never build wealth.
So you’ve got to decide. Do you want to have the rush and excitement and never build wealth, or do you want to have the long-term sustainable wealth, not have the rush and the excitement, but actually have the potential to build real wealth with much less risk?
And a lot of people take the first option, they get burned, they hate investments, and then they say, I never want to invest my money again.
But this is weird. If you really want to build wealth, you can take the fast and exciting route and test it out.
And when you get burned, remember that the other route, the way that you actually become wealthy by long-term investing, is there.
But you have to be willing to stick with it and go through the ups and downs and keep learning. That way, you can work to grow your returns and get potentially a little bit better returns. But being smart with your investments is how you get there.
About 50 years ago, the United States was facing an inflation problem, and then we were hit with high oil prices because of the conflict in the Middle East. Sound familiar? Because we’re seeing something similar happen today.
In the 1970s, the Federal Reserve Bank took certain actions in response to all the changes in the economy, which made some people very rich while leaving everybody else.
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