Top 5 Financial Mistakes That Will Prevent You From Building Personal Wealth
We all have different money stories. For some of us, thinking and talking about money is extremely uncomfortable. For others, it might be a source of stress and worry. And unfortunately, some of us carry self-limiting beliefs when it comes to money and wealth building.
The first step in building personal wealth is to understand our beliefs and values surrounding money. We can know all the best tips and tricks to implement, but if we don’t first believe we can build wealth, we won’t succeed. This positive mindset allows us to take on the challenge of wealth-building and surpass our wildest financial dreams.
We also need to understand that money is a tool. Money should never be a goal in and of itself, but rather a means to accomplish our ultimate dreams.
With all this being said, you’ll want to look out for these common stumbling blocks that can get in the way of personal wealth building. We want to dive into five financial mistakes that we often see so you can be on your way to building the life you always dreamed.
5 Financial Mistakes To Avoid
Mistake #1: Not Having A Plan To Build Wealth
Most people who have built wealth will tell you that it took time, hard work, dedication, and motivation - they didn’t simply wake up with their success. Many people hope for the best or place their future on winning the lottery or receiving an inheritance from a long-lost uncle.
But a more secure, reliable way to build wealth is to have a plan. Start by first listing out your goals and dreams. Having a vision will help you stay on track and know what to do as you navigate your financial life.
Other parts of a financial plan include…
Cash flow and budget planning: Create a budget with all of your spending categories broken down into needs and wants. Include savings and investing here too. Add up all of your income and assign it to a category.
Retirement planning & debt management: We’ll cover more on these topics below, but when you’re creating your budget and planning your cash flow, be sure to include retirement savings and debt payments.
Emergency savings: To protect your wealth, you’ll want a chunk of cash that you can easily draw upon in an emergency to avoid going into debt.
Proper insurance: Not having the right type or amount of insurance can quickly hurt your wealth-building progress.
Mistake #2: Not Making The Most Out Of Your Job
Your salary will most likely be your biggest tool for building personal wealth. Ensure you’re making the most of it!
If you’re working for a company that does not provide opportunities to advance, consider applying elsewhere. If you’re sure there are opportunities for advancement at your current company, continually look for ways to provide more value. This will validate any raises you ask for and make you a valuable part of your team.
Additionally, you should always be working toward improving both your hard and soft skills. This will make you more adaptable, more likely to be chosen for leadership roles, and overall, a more desirable employee.
In addition to your regular job, consider adding more streams of income into your wealth-building plan through passive income and side hustles.
Passive income ideas include investing in rental properties or creating intellectual property such as digital courses, books, templates, videos, apps, etc. You could also start a side hustle in your free time such as working as driving for a rideshare app, delivering food or groceries, working remotely as a virtual assistant, taking professional photos, tutoring, etc.
Multiple streams of income will help skyrocket your wealth-building success.
Mistake #3: Not Investing In Retirement Early and Often
Saving for your dream retirement (or even any retirement at all) gets harder and harder the older you get. In fact, for every decade you wait to save, you’ll need to increase your monthly savings by approximately three times! The sooner you make saving (and investing) for retirement a non-negotiable in your budget, the less you need to put away each month.
If you think about your retirement savings as a percentage of your income rather than a specific dollar amount, the amount you save will naturally grow as your income increases. Use a retirement calculator for your specific scenario.
It’s also important to know your retirement options. If your employer offers an employee match, be sure to contribute to at least the amount you need to receive the full match.
Know the retirement contribution limits - currently $22,550/year for 401(k), 403(b), and most 457 plans for 2023 and $6,500 if you're under age 50 and $7,500 if you're age 50 or older for Roth IRAs. While it’s great to aim for these contribution limits, it may not always be possible given circumstances and life seasons. However, aim to contribute at least 10-20% of your income.
Mistake #4: Using Debt For The Wrong Reasons
Unfortunately, having debt keeps you from building wealth. Leveraging debt can certainly be a means to building lasting wealth - such as for real estate, education, business investments, or other appreciating assets.
However, there are plenty of opportunities to use debt for the wrong reasons. These can include using debt to purchase consumable items - such as vacations or unnecessary clothes, or depreciating assets such as new cars.
If you find yourself weighed down with a lot of consumer debt, try to double down and pull yourself out. While you’re paying off debt, it’s important to keep an emergency fund so you don’t fall back into a hole of debt if something unexpected happens.
Mistake #5: Inflating Your Lifestyle
A major stumbling block to building personal wealth is lifestyle inflation. The idea is that when you receive a raise, you also increase your discretionary spending and upgrade your lifestyle.
This can lead to individuals buying homes based on what they feel they “deserve” rather than on strong financial plans and goals and acquiring more material things to increase their satisfaction.
This is why it’s so important to have a financial plan. When the promotions and raises come, you can reference your plan and see how the increased income can help you achieve your goals faster instead of buying temporary or artificial happiness.
Build Wealth With Financial Fitness Coaching
Financial Fitness Coaching exists to help you grow, succeed and build wealth. We help you grow with confidence, stop wasting time, and keep more money.
In order to help our clients build wealth, we offer business financial coaching, Profit First coaching, and personal financial coaching. To see how we can help you and your business, email us at info@financialfitnesscoaching or simply schedule a free 20-minute Discovery Call on our calendar.