Pattie Lovett-Reid: The top 10 money mistakes you are making
We can be savvy in so many ways in our lives. Yet, when it comes to having our money work as hard for us as we did for it, we all sometimes come up short.
Here are the top 10 money mistakes you’re likely making (but shouldn’t):
1. Letting cash sit idle: Cash sitting idly in your savings account earns next to nothing, and when you factor in taxes and inflation, you are likely losing money in this low interest rate environment. Develop an investment strategy today. Start investing your money in the market if you have at least a five-year time horizon. Procrastination will destroy your wealth plan.
2. Falling in love with your assets: Never fall in love with your investments. You need to have the emotional intelligence to sell underperformers. There is an opportunity cost (finding a better investment) by staying with a loser for too long.
3. Abdicating financial responsibility to someone else: Don't do it. No one will care more about your financial future than you. Take control of your financial situation. Set some goals that get you excited. Develop a plan and then respect yourself enough to stick to the plan.
4. Don’t try to time the market: It is impossible to really know which sector, market or investment will outperform at any given time. Buy good quality investments and be a long-term investor verses a short-term speculator.
5. Understand the impact of compounding, taxes and inflation: The power of compounding – earning income on top of income – should never be overlooked. In fact, it is your secret financial weapon. Unnecessary taxes can eat away your returns and so can inflation – even in a low inflation environment.
6. Relying on your memory: Automate your way to financial success. Set up preauthorized payment plans so money comes directly out of your account and applied directly to debt, retirement savings or into your investment portfolio. Automation takes timing and temptation out of the equation.
7. Not knowing what you own: For the record, I like mutual funds but I also like to know their top holdings and how the funds stack up against their peers. I’m for consistent returns over time, as I believe a slow and steady strategy will win the race.
8. Overdoing it: No one wants you to save until it hurts or spend as if there is no tomorrow – find a balance.
9. Ignoring what you’re worth: Compile your net worth statement annually. Confront your brutal financial facts. Unless you can clearly see how much you owe and how much you own, you will never make the necessary changes to experience financial freedom. Look for ways to free up some money and start investing.
10. Leaving money for tomorrow: If you are retired, you do get to spend. Enjoy your life because if you don't, your heirs will.
You know the adage – it is truly only a mistake if you do it twice. I hope that by sharing some of the lessons I’ve learned along the way, you don’t have to fall into the trap of making these mistakes even once.