Pimp Your Finances

My main goal is to build wealth – not just get out of debt. Time is the best tool I have, so it doesn’t make sense to wait to start building wealth.

To that end, I’d like to discuss Jeffrey Strain. He recently published a list of Ten (More) Reasons You Aren’t Rich, a follow up to his original list of Ten Reasons You Aren’t Rich. If you can steer clear of these pitfalls, you’ll be well on your way to wealth.

His list is below in italics. I’ve added my notes below each one, and also highlighted my favorites.

1. You care what your neighbors think

If you’re competing against anyone for material possessions, you’re always going to lose. There will always be people with more than you. The trick is to be happy with what you have, not worry about others.

2. You aren’t patient

With credit cards, you have the ability to buy things first, then save for them later. If we saved the money up front, we’d buy less things and pay less interest.

3. You have bad habits

Everyone does. It may be going out to eat, it may be buying DVDs, could be shopping too much or going out to the bars. We all have our sins, and we could all cut some of them out without affecting our happiness.

4. You have no goals

This is my favorite one. You have to have goals to accomplish what you want. You have to track them and work towards them. Good things don’t just happen on their own.

5. You haven’t prepared

Hope for the best but prepare for the worst. You should always have insurance (I have health, disability, and life), and an emergency fund (which I don’t) to help you through the hard times. If you don’t, one bad day has the potential to wipe out your finances.

6. You try to make a quick buck

There’s no easy way to get rich. It’s going to take time and hard work.

7. You rely on others to take care of your money

No one will care about your money more than you will. And even the best financial planners may not have the same goals as you.

8. You invest in things you don’t understand

You should make financial decisions because you’ve investigated it, compared the benefits and risks, and decided that it will help your bottom line. You shouldn’t invest in something because it’s a hot tip, or because everyone else is doing it.

9. You’re financially afraid

Being overly conservative with your money is another way of throwing it away. If you keep your money in a savings count, you’re actually losing your buying power after inflation is considered. If you have a retirement plan, but invest exclusively in bonds even at a young age, you are wasting time.

10. You ignore your finances

Ignoring bad news won’t make it go away. If there are things in your financial life that you are not happy about, you need to tackle them head on and come up with a plan to fix them. You can’t just bury your head in the sand.

11. You care what your car looks like

Why buy a new car if the one you have now runs fine? It’ll just cost you more in interest and insurance. Also, once you finish off a car payment, it’s easy to just channel that money into a better cause, like savings or a retirement fund. You’ve probably already forgotten about the money spent on car payments, so you won’t miss it if you just put it somewhere else.

12. You feel entitlement

Everyone is guilty of this. “I had a rough week. I deserve to XXXXX.” Or “I make good money. I should be able to YYYYY”. This is ok sometimes, but the key is to use moderation. Cut out some of the entitlements that don’t matter or don’t really make you happy.

13. You lack diversification

Sound investment advice. If your eggs are in multiple baskets, chances are that one of them will be doing well even as others are on the way down.

14. You started too late

Time is the best friend you have. The power of compound interest is incredible, especially for young investors.

15. You don’t do what you enjoy

I agree with this, but only so much. You have to enjoy what you do, but taking your dream job probably won’t make you rich either. Finding a job that you can take pride in and that helps you grow is a good start. With time, you can hopefully leverage your experiences to work towards something you’re passionate about.

16. You don’t like to learn

If you want to be in charge of your finances, you need to learn as much as you can. Talk to people. Read columns, read books. Read blogs, and learn from the experience of others. You can benefit from their mistakes without having to feel their pain.

17. You buy things you don’t use

We all have books, movies, exercise equipment, etc… that we no longer use. Any time you buy something, take the time to stop and think “Do I really need this, and will I really use it?”

18. You don’t understand value

Cost is not the same as value. The most expensive product probably isn’t the best, and the cheapest may just fall apart. Make sure you get the most for the money you spend.

19. Your house is too big

I think this was a big contributor to the housing meltdown and credit crunch. People bought more than they could afford because they thought it was an investment. Your house is something that costs you money – it’s a liability. Having a bigger house will cost you more in the long run.

20. You fail to take advantage of opportunities

If you really want to get ahead, you’ve got to take advantage of everything you can. This means investing at an early age. Taking advantage of 401K matches and employee stock plans. Recognizing and buying a good value when you see it, regardless of if it’s a car, house, or investment.

It doesn’t just stop there. How many times have you seen a new business or idea, and thought “I could’ve done that.” Well, why didn’t you? If you have an idea or opportunity, go for it. Don’t just sit there.

I think you learn more from mistakes than you do successes, and that’s a great list of mistakes to avoid. I’m guilty of at least 9 of them.

If it was my list, I would also add: “You make the same mistakes twice”. How many people pay off debt just to sink back in? Or say repeatedly “I’ll start tomorrow”. What other mistakes would you put on that list?