Financial Mistakes: Ways To Ruin Your Life

Luck plays a big part in financial freedom and creating wealth. I have no doubt about it. I have seen people make a fortune with a single investment that fell their way. On the other hand, everybody makes financial mistakes. Some are bigger than others. In this newsletter, I want to cover a few financial mistakes of my own and of those people I know. The list of possible financial mistakes is endless so consider this article as just the starting point for reflection.

Mistake # 1: Don’t give a Loan to your Friend

I shared earlier in the newsletters that I believe in keeping aside some money to help family and friends in their time of need. I’ve been building a small corpus to help people I care about. However, a recent financial mistake that I made was helping out a friend who was adversely affected by the pandemic. It’s been two years; I haven’t got a penny back and my friend refuses to even pick up my calls now. It’s a small amount but the bigger issue is that of trust and friendship.

Lesson: Buy your friends/family’s product to support their business but don’t give a loan.?Quoting a line from The Richest Man in Babylon, “If you desire to help thy friend, do so in a way that will not bring thy friend’s burden upon thyself.”

Mistake # 2: I didn’t Invest in my 20s

Lack of financial literacy got me too. Like most people, I grew up without getting sufficient know-how about money. Stung by a few bad investments in my first job, I stayed away from investing in the stock market for almost 5+ years. Looking back, it was a big (rookie) mistake. I wish I had read a few books and invested in index funds each month through my 20s. The solution was as simple as that!

Lesson: Investing in index funds each month for years can build sufficient wealth.?

Mistake # 3: Don’t Spend on Luxury Items

Once I started earning a higher income, my expenses increased significantly. I bought things that later were not of use or satisfaction. Combining it with my newly-found investing knowledge, suddenly I could’ve accelerated my roadmap to financial freedom had I been more mindful. I don’t mean living extremely frugally but I could’ve avoided a few big expense items and made better use of that money through investments.

Lesson: Prioritize financial goals over impulsive purchases.?

Mistake # 4: Don’t Invest in Speculation

This one is based on my conversations with a few people who invested in cryptocurrencies for a quick profit. To my surprise, these folks knew little about cryptos before investing a significant amount of money. Unfortunately, it hasn’t ended well with them making significant losses. I’m not saying all of crypto is speculation but there’s ample information online to study each crypto, its origin, and utility. Then comes the part of asset allocation. Should you allocate more than 5% of your net worth in cryptocurrencies? Should you even think about investing in crypto before you've built a decent portfolio of low-risk investments? Some of the investors I know have allocated about 2% of their net worth in crypto.

Lesson: Learn the tricks of the trade. Research the financial instrument and build your own conviction before investing your hard-earned money.

Mistake # 5: I didn’t make a Timely Decision

This one is towards creating wealth through fast decision-making. I had known this startup for a year or so that came up for an investment round. I knew I’d wanted to invest but for some reason, I took the time to make a decision that cost me missing out on the deal. I suppose every investor has made this mistake at one time or another. In the investment world, this is called the ‘anti-portfolio’. That investment went on to become a massive success.

Lesson: "You miss 100% of the shots you don't take" ~ Wayne Gretzky?

I haven't covered 'Debt' because I have stayed away from it. But I know a few people who've had many a sleepless night due to debt. Drop a comment below with your financial mistakes so others can learn from you.

Action Of The Week

1. Make a list of your financial mistakes: Write it down on a piece of paper today. You can take a look at this article or this article to learn about the most popular mistakes made by people.

2. Reflect on your Past - Behavior and actions related to money:

• What would you do differently if you could turn back time?
• What did you do well that you should continue doing in the future?

3. Investing: How did you build conviction in the latest investment that you made? What research and analysis did you do? How do you plan to measure the success or failure of the investment?

Moment Of Clarity

It’s never easy to admit our mistakes. Denial is so much easier. But without reflection, how can we move forward and become better at managing our money? I hope this exercise has helped you reflect on your approach toward financial freedom and what not to do going forward.

“When you blame others for your investing mistakes it proves you didn’t do enough of your own work. Own your mistakes so you learn from them.” ~ Ian Cassel

Thanks for reading.

Darshan Doshi