For those just starting out on their own, money can be intimidating. In those first few years, mistakes are just as inevitable as the financial losses that follow a misstep – and as painful as those errors are, they serve as signposts on the road to financial stability.
Even experts who have built their careers around finance have made a few bad calls in their earlier years – and learned from their mistakes.
Here are a few of the errors that they made, along with a few tips for avoiding similar mishaps!
Trusting Personal Relationships Over Logic
Financially successful individuals don’t cross friendship and business. While agreeing to invest in a close friend’s or even a family member’s business proposal can seem like a fun idea or even just a polite response to being asked, you should decline. More often than not, interpersonal feelings bias you against an objective view of the asker’s business plan, and leaves you poorer in time, money, and friends.
Expert Case Study: When Jacki Zehner, current CEO of Women Moving Millions invested time and energy in getting a friend’s recording studio off the ground, she lost her investment, her friendship, and most significantly – her time.
Failing to Review the Fine Print
Contracts can be slippery, and end up costing you far more money in technicalities and rollover costs than you ever expected to pay when you signed. It can be easy to be lulled into complacency after months of regular payments – and costly! Read the fine print, and don’t forget to shop around for better bargains if you feel that you’re paying too much for the service you receive.
Relatedly, make sure to go over your credit card bills and account statements at least once a month to check for fraud. While reconciling bills and accounts can be a pain during busy months, a quick check will catch any unauthorized transactions and potentially save you thousands of dollars.
Expert Case Study: Justin Modray, founder of Candid Financial Advice, got caught up in a stressful move to a new house and didn’t notice that he’d been swindled out of three thousand pounds until he checked his statement a few months later. He reached out to his bank and managed to get the stolen funds back – but he made sure to regularly reconcile his accounts after the scare!
Purchases add up. Even a couple of nice dinners and a great deal at that store you love can launch you significantly over budget. Crunch the numbers! Work out how much you need to set aside for bills, savings, and living costs every month, and then decide how much you can afford to spend on fun.
Expert Case Study: Financial author Kate Northrup blew through far more money than she should have when she was in her twenties. She explains her rationale: “I had this idea that I needed to look a certain way and that I needed to look like I had it more together than I did. That, to me, meant spending more money than I actually had because I wanted to look more successful than I actually was.”
As Northrup suggests, real success comes more slowly, and requires patience and financial foresight. Looking well-off only goes so far when you don’t have money left at the end of the month.
If it looks too good to be true, it probably is. Stay away from investments that promise quick returns in short periods of time. Not only do such ventures normally crash, but sometimes they can have shady roots! You stand to lose all that you contribute – if not more – by buying into a greedy scheme. Instead, look into more stable, long-term investments.
Expert Case Study: Alex Davies, co-owner of WealthClub, made the mistake of investing almost £20,000 in a minerals company that went under within a year! The nearly double return he received initially slipped through his hands when the questionable firm fell apart. Don’t invest in deals that promise quick returns – they rarely last!
While it’s tempting to follow an impulse or make a decision based on emotion, biased or split-second choices will inevitably lead you into financial trouble. It’s vital to keep a level head and learn from your mistakes, regardless of whether you’re a beginner or financial expert!
Ajay Nagpal, the Chief Operating Officer at investment management firm Millennium. Ajay Nagpal supports social entrepreneurship through his work as a Board member of Echoing Green. Please visit his social entrepreneurship blog to learn more about that! Also, find him on Behance!