I know these are four big mistakes because I have made all of them and have found fixing them improved the quality of my life.
My own version of Financial management was simply to work harder and make more, so I could spend more. I come from a frugal background. Eating out was only for when my mother was too ill too cook and the holes in my jeans were not because I was trying to be fashionable. As I raced into my adulthood I decided I wanted to experience the other side. I worked hard and got lucky and made my way into the top 4% of earners in the USA. What I made up for in money though, I lost in time for nurturing myself.
It turns out my mothers' motto was correct, everything in moderation. In the long road back to a more balanced middle ground, these are what I found to be four of the biggest mistakes we make with our finances and how to fix them.
1. Inconsistent Financial Management
As with sport or music, consistent practice makes you better. There is no short cutting certain things in life like your health, your relationships and your finances.
I recently listened to a Tim Ferris podcast with Jocko Willink, a retired Navy SEAL who now has his own podcast on leadership along with books he writes for kids teaching the same. In the podcast he says the most common question asked of him by new recruits is "how do you get through basic training?" His response, "Just don't quit". It's the same with your finances. Don't quit.
Your financial boot camp is simply 10 minutes of undisturbed time each week. During this time, simply review what you spent your money on that week and peek into the progress of your goals. This will keep you focused and help you stay ahead of problems.
2. Following Status
Our communities have a real impact on our lives. I read you become the average of the five people you spend the most time with. Our greater community is the culture we physically live within and what we immerse ourselves in online.
Often money spent on entertainment, travel and possessions are influenced by small signals from our community and culture. The result is subconscious signals that these material things will improve the quality our lives.
For sustained happiness, it is more likely our lives will find daily joy if we take care of our physical well being, spend time in nature, nurture healthy relationships, pursue new knowledge and feed our soul with creative pursuits, none of which cost very much.
Before a purchase, walk away from the register, place a hold on the online shopping cart and consider... Is it really for you or is it a cultural Jedi mind trick?
3. Account Setup
Most of your expenditures can be categorized into household, dwelling, business and fun money.
Your dwelling necessities like mortgages and electric bills are fairly predictable. Your household expenditures can be more emotive. Ever shop on an empty stomach? If you hold money for these two different types of expenses in the same bank account, you are creating unnecessary opportunity to overspend.
Co-mingling fun money with anyone or anything else takes the fun out of it. Your Business is not a checking account. Pay yourself a set amount and survive on it.
Establish separate bank accounts for each of these categories. With online banking and electronic non banks, this is super easy now. You will be amazed at how much clarity and accountability can be had with this simple method.
4. Saving Savings for Last
Warren Buffet has always given the advise, do not save what is left after spending but spend what is left after savings. Take money out, automatically if you can, and put it away, as much as 50% if you can afford to. Half of that savings you can access for medium term ideas like travel and the other half of it gets put away for dreams which will play out in the longer term, over 5 years.
This feeds back into the 50/30/20 rule.
If you are struggling to find savings, review what you pay for necessities such as food and shelter. AirBnb guests can be a source of new views, sharing school pick ups can expand your social circle, cooking meals can add dimension to your existing relationships.
My takeaway from experiencing both sides... Frugality fuels imagination, focus and enjoyment. Money may not be power but it is a powerful tool should you choose to invest your time and follow your heart.