8 financial mistakes you can correct before it’s too late

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Successful investors learn as much from their mistakes as they do from their successes, whereas the average Australian seems to make the same financial errors over and over again, and wonders why things don’t change.

Let’s have a look at eight of the most common financial mistakes people make;

1. Getting caught in the income trap.

Most Australians are caught in a rat race, believing the way to become rich is by increasing their working income.

When they start working, they manage to survive on a basic wage, but each time they get a raise they use the extra money to buy “stuff” – their first car, then a bigger car, a TV.

They spend all their income so they work harder, advance into a higher paying position and buy more “stuff”.

Then on it goes – the more they earn the more they spend and their now substantial salary wouldn’t cover their increasingly expensive lifestyle.

When you focus on income, you fall into the trap of spending all you earn.

More income, without the right financial understanding, habits and skills, is as dangerous to your financial success as too little income.

The solution is to earn passive recurring income; money you make when you don’t work.

2. Saving like middle income earners.

The average Australian has been taught to invest in superannuation or set aside 10% of their income to build a retirement nest egg.

This is fine if your goal is to be a middle-income earner – but it will never make you wealthy.

The concept of building a “nest egg” is inherently flawed.

Your goal shouldn’t be to accumulate a lump sum to slowly spend during retirement, hoping you don’t outlive your money.

Rather you should build an asset base that generates ongoing passive recurring income; a self-perpetuating money machine – like a portfolio of well-located income producing residential properties or a portfolio of blue chip shares

3. Never learning to invest.

Most of us have never been taught how to save, let alone invest.

Younger generations are living differently to their parents; they’re marrying later, spending more on “lifestyle” and fearlessly taking on credit card debt.

As a result, many people have significant earning capacity, but few assets.

I must admit that when I was young, I couldn’t spend money fast enough! But inevitably a time comes when you need to manage your finances better.

To be financially independent you need to build an asset base that generates passive residual income, like a sound property portfolio.

4. Falling prey to easy credit.

Consumer debt is too easy to get.

Large retailers offer the latest gadgets interest free with no deposit and while this sounds great, for people with poor money habits it’s a massive trap.

Anything you purchase with “free” credit goes on your account and you don’t even own the product you walk out with.

When the bill inevitably arrives what do most people do? They only make the minimum repayment.

Now the credit card companies have you right where they want you!

At the end of the finance term you’ve paid much more in interest, or at the end of the interest free term you haven’t paid off the item and you start paying up to 20% interest on the balance owing.

5. Getting advice from the wrong people.

Many people don’t realise they’re repeating the same financial patterns their parents demonstrated.

They continue to consult their uncle who’s broke or friends who are struggling to make ends meet.

Why would you ask advice from someone who is not achieving the results you want?

Instead surround yourself with the best and you’ll be at your best.

Use others’ successes as templates to close the gap between where you are and where you want to be.

6. Thinking investing is too difficult.

Many people feel they can’t or are too busy to invest, so they take the path of least resistance and don’t do anything.

However wealthy people plan, take action, learn from their mistakes, consult experts and take charge of their own financial affairs.

Sadly, most people aren’t prepared to pay for good financial advice.

They go to a “cheap” financial planner, but the cheap advice they receive might be very expensive in the long run because it doesn’t accelerate their wealth creation.

Others start climbing the investment ladder, but give up along the way because they’re stuck in the rat race and can’t see themselves getting anywhere.

7. Making emotionally based financial decisions.

We all tend to make most of our decisions based on emotions, but it’s important to recognise that we do so.

Your subconscious “financial blue print” – your beliefs and emotional associations regarding money – colours your financial decisions.

While you can’t change this fact, you can change your thoughts and feelings about money so they have a positive influence and make you less fearful of climbing the investment ladder.

8. Letting fear get in the way.

True wealth is on the other side of fear.

Over the years I’ve learned that fear prevents many of us from getting what we want or where we want to be, especially in relation to wealth.

Think about the times when fear stopped you from taking action, costing you a potentially large financial opportunity.

The key is to harness our fears in a positive way, because fear can hold us back or drive us forward.

If you learn to think like a wealthy person, you’ve got a much better chance of becoming one.

Remember anyone can do it, but not everyone will. My question is, will you?

Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.

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