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How To Get Ahead Financially
Need some clever ideas on how you can save more money for those rainy days?
I bet you’re constantly asking these questions:
- How can I get ahead financially when I’m behind on my bills?
- What are the biggest financial mistakes I’m making?
- What to do when you’re broke?
Well, here’s how to get ahead with money and your life!
Biggest Financial Mistakes to Avoid
If you’re reading this article, you obviously have some interest in managing your finances. But even those of us who try to get the most out of our money will make plenty of mistakes.
Mistakes are inevitable, but of course, we want to minimize them. Just as important, we need to learn from our mistakes.
In this article, we’ll take a look at several common money mistakes that you may be making without even realizing it.
These are all mistakes that I’ve made myself, and fortunately, I’m learning from them. Hopefully, they will help you to evaluate your own situation, and maybe you can avoid some of the mistakes that I’ve made.
Mistake #1: You’re More Concerned with Income Than Net Worth
When most people think about what qualifies someone as rich or wealthy the first thing that comes to mind is how much money they make.
If you know someone who makes a lot of money or even works in a career or job known for paying well, you may associate them with being well off.
Most of us think of doctors, attorneys, athletes, and actors as being rich. While they may have a great income, that doesn’t automatically mean that they’re in a good financial position. Of course, there are plenty of examples where this isn’t the case.
We’ve all known people who make a very good income but have very little to show for it because they manage their money poorly. And on the flip side of the coin, there are plenty of undercover millionaires that have never made a high income but have managed to put themselves in a very comfortable place financially because of good decisions.
Would you rather make a high income and have a low net worth, or make an average income and have a high net worth?
In reality, net worth matters a lot more than income. A good income can help you to build net worth, but if you’re not managing your money effectively, that high income will be wasted.
There are many convincing reasons why you should track your net worth, but one of my favorite reasons is that it helps me to easily measure my own progress towards my financial goals. If you’re hoping to reach financial independence, your net worth can quickly show you where you stand.
When you start tracking your net worth you’ll begin to think about how your financial and life decisions impact your net worth, both positively and negatively.
Mistake #2: You’re Not Saving for Retirement Early Enough
According to research by the National Institute on Retirement Security, 66% of millennials have nothing saved for retirement and 95% are not saving enough.
Most young people are not saving for retirement because it seems so far away. They think they have plenty of time to do it later.
The truth is, your younger years are the best time to save for retirement. Thanks to the combination of compounding interest and long periods of time, saving in your 20’s and 30’s will have a massive impact on your retirement.
Even if you feel like you’re not making enough money to save, contributing to a 401(k) or another retirement plan should be a priority.
If you still need to be convinced, check out the charts in this article.
Mistake #3: You’re Paying Too Much in Investment Fees
Investment fees can have a big impact on your long-term gains, but it’s possible that you’re not aware of how much you’re paying in fees, or how much they are eating into your returns.
Some investments have very low fees, and others are way higher than comparable alternatives. Companies like Vanguard and Fidelity are known for offering low-fee mutual funds and ETFs that can be great options for the fee-conscious investor.
If you have a 401(k) plan through your employer, be sure that you are paying attention to the fees involved with the funds that you’re choosing to invest in. NerdWallet shows that a 1% investment fee could cost millennials $590,000 in retirement savings!
Related post: ETF Investing For Dummies
Mistake #4: You’re Paying Too Much in Taxes
One of the great benefits of 401(k) plans and traditional IRAs is that your contributions can reduce your taxable income. So not only are you saving and investing for a better future, but you’re helping yourself today by lowering the amount that you pay in taxes.
That’s not the only way you can legally and ethically reduce the amount that you pay in taxes. A good accountant will be able to help you minimize that amount that you pay in taxes without doing anything that could get you in trouble.
I’ve been using a local accountant for the past 8 years and he’s saved me far more money than he has cost me. I’m also self-employed, so my situation is a bit different than some people, but depending on your own situation you may greatly benefit from getting the advice of an accountant.
Paying taxes is important, but paying more than you need to isn’t a good use of your money.
Mistake #5: You’re Focusing Too Much on Saving Money
Ok, this point may seem to contradict point #2 about not saving early enough, but hear me out.
Being careful with your money and living a frugal life is a good thing. But it’s easy to get consumed by reducing expenses and constantly trying to find ways to spend less and save more.
At the same time, a lot of people don’t give any thought to how they can increase their income.
Saving money is good, but from my experience, increasing your income can have a bigger impact and allow you to build up your net worth faster.
For all of my adult life, I’ve been careful about how much money I’ve spent and tried to find ways to save. Throughout my 20’s I made very little progress financially because my income was low. In my 30’s I continued to be careful with my money, but I prioritized my income, and the result was fast growth in net worth.
If you want to speed up your progress towards your financial goals, think about the ways that you can increase your income.
Increasing your income could involve getting a raise at your job, getting a promotion, earning some sort of certification, working overtime, or starting a side hustle. A side hustle can be a great way to make more money that you can invest – just check out this income report!
There are plenty of different ways to make money. Just find one that appeals to you and fits well with your schedule and your strengths. For me, a side hustle turned into a full-time business.
Related posts to help you make extra money:
- How I Make Over $3,000 Per Month (Without a Real Job)
- 5 Legit Ways To Make Extra Money Online ($1,000+ Per Month)
- How I Make Money Blogging as a Side Hustle
- 15 Best Survey Sites To Join For FREE (Earn Up To $35 Per Survey)
Mistake #6: You’re Overlooking Opportunity Cost
According to Investopedia, opportunity costs “represent the benefits an individual, investor or business misses out on when choosing one alternative over another.”
Opportunity cost applies to your investing as well as to how you use your time.
From an investing perspective, if you could be investing in X and earning 10%, but instead you are investing in Y and earning 6% interest, your opportunity cost is 4% interest.
Don’t focus only on how your investments are doing, consider the other ways you could be using that money.
Likewise, you need to think about opportunity cost related to your time. All of us (regardless of rich or poor) have 24 hours in the day. We can only do so much with our time.
Just because you’re making money with something doesn’t mean it’s the best use of your time. Is there something else you could be doing that would produce more money with the same amount of time?
I’ve been self-employed for the past 10 years, but prior to that, I had a typical job as an employee. Once I left my job and started focusing on my own business my income and net worth started increasing significantly.
During the last year or two that I was working at my full-time job, I didn’t realize the opportunity cost and what I was missing out on.
If you have a side hustle or are looking for a side hustle, be sure to consider opportunity cost. There are a lot of side hustles that will bring in some money, but not very much. If making money is your main goal you should find an opportunity that will be worth your time.
Mistake #7: You’re Not Building Passive Income Streams
Building passive incomes streams is one of the best things you can do if you want to reach financial independence. Passive income can allow you to retire from traditional work and still make money to live a comfortable life.
There are a lot of passive income ideas that you can pursue, but some of the most popular include owning rental properties, investing in dividend stocks, and peer-to-peer lending.
Not every option for building passive income will be right for you, but it’s important to find at least one or two ways that fit well with your goals and preferred strategies.
Rather than just saving money, think about how you can use that money to create your own passive income streams.
What Mistakes Have You Made?
Feel free to share your own mistakes that you’ve made, and learned from, in the comments.
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