When you hear that people are broke, it’s not necessarily because they don’t see enough money or that they do not see money at all. It has a lot more to do with how one’s financial life is managed. It is important to note that how much money one earns is not the major reason one can either be buoyant or broke. What I mean is that you can earn more and remain more broke than someone who earns less. One can earn more, lack the basic things of life but someone who earns less has those things. Many believe that those who are frugal and somewhat prudent with spending are the ones who are never broke. The truth is that one can be frugal, and stingy, if you like and is still very broke.
Below are seven common mistakes we make about money that renders one eternally broke.
1.Lack of Savings: This is very common amongst low income earners. They always question the size of their income and query the need to save when the money isn’t even enough. There is no amount that is enough. It is a grave financial mistake not to set aside a certain percentage of ones income for the rainy day. Knowing that you have some money saved somewhere encourages you to work harder and save money. Knowing that you don’t have any savings frustrates your efforts and makes you believe that the job you do is of no use since you always have nothing to show for it.
2.Spending Before Saving: If you ever think you can save what remains of your income after spending, be rest assured that you’ll never save because nothing would remain. It is important to remove your savings and keep it far away from your reach before you ever start spending. Money, when in your hands, has a way of reminding you of some needs that you’d ordinarily would not want to solve yet.
3.Spontaneous Spending: This is otherwise known as impulse buying. It simply means spending without planning or budgeting for it. Once you have money in your hands, the urge to spend increases, if you’re not careful, your needs for the moments might not be remembered until the entire cash is gone on frivolities. To solve this, write a list of what you need as you expect your income. Follow the list in their order of preference.
4.Spending on Hope: This is why some people’s income disappears the day it arrives. This is common with salary earners. Don’t be quick to borrow because the pay day is at hand. This is why it is important to knock up extra source of income to augment the take home pay that doesn’t get home at times. When there is an extra source of income, the take home pay might eventually know where your home is. Without extra source of income, especially as a salary earner, not even prudence and frugality can save you from being broke. Some of us even borrow to spend because someone has promised to dash us some money or because the person owing us has promised to pay today. That’s funny, what if the person fails? Don’t even lend someone money you’re not ready to lose.
5.Taking a Loan that Accrues Interest to Start a Business: This is a very common financial mistake amongst low income earners. It is a grave mistake to believe that a new small business can generate enough money to pay for the principal loan, pay the interest, maintain itself and maintain the owner. Such business would not last beyond a few months after its take off. Business loans are taken to enhance businesses or carry out a certain aspect of the business transactions and not to start a business from the scratch. Most times, those who go for such bank loans have factored the interest and even the loan into the business.
6.Sentimentally Guaranteeing a Loan: Never guarantee a loan you’ll not be willing or able to pay. You must have assured yourself that this person is worth suffering for before ever putting your pen on the paper as a guarantor for any loan. If you are not convinced, you might jolly well be setting yourself up for a financial misery.
7.Living above Your Income: It’s good to live big but it’s a financial blunder to live above your income. This includes living in an area you spend up to half of your annual income on accommodation. Sending your children/wards to expensive schools; shopping in a highbrow areas where prices are double of what you can get them in other areas. For instance, a shirt sold for N7k on Lagos Island cannot be less than 15k in a boutique on the mainland. Why not get them from the island and leave the boutiques for those who can afford it?
One way or the other we might be guilty of one or two of these financial mistakes. It’s not too late to make amends and free yourself from some self-inflicted hardship. See you at the top.