The business and entrepreneurship series: 26 most common money mistakes entrepreneurs make – Part 2
11) Getting into the habit of buying every latest or new thing.
Be disciplined; say no; don’t buy what you don’t need. There is nothing new that you buy that once you pay for it and leave the shop with it that it doesn’t begin to depreciate. Especially cars, electronics, phones etc. So these things are really not assets as their value does not increase but depreciates after purchase. So why not invest your money in instruments and things that the value increases. Even after their purchase. In times of recession or for some things it may even make more financial sense to buy fairly used things like cars with very low mileage and in good nick. Getting X-display stuff like phones, electronics, furniture etc. can be a good investment and wise decision.
12) Living only for today
Focus on the present but live and financially save for tomorrow. It is true that in life you have no control over yesterday because it has already come and gone you can’t change it; they also say that your tomorrow is based on the decisions you make and the actions you take now. However in financial terms it is a slightly different principle; there are 3 dimensions of financial focus short, medium and long term. One of the greatest financial mistakes anyone can make is to permanently be myopic i.e. focus exclusively, living for and financially planning for the short term. This attitude causes wasteful and foolish spending. People like this unfortunately attracts their kind and therefore surround themselves with similar foolish people. As we know “He who walks with the wise shall be wise but the companion of fools shall be destroyed” (Proverbs 13:20).
If you live for today financially all your decisions will be today centered and they will be laden with many financial errors. Which will cause you and yours stress and many pains, frustrations, anxiety and near death misses. Short term people will never see any sense in saving and investing for tomorrow today. They can never have the ability to delay gratification today for a better tomorrow. Being able to see and plan long term is a gift that should be taken seriously.
13) Don’t buy things on Impulse – What some call retail therapy
When stressed, comfort shopping for things like chocolate, food, drinks, clothes, etc. most times releases endorphin into your body, giving you a false sense of happiness which many people invariable get addicted to unknowingly. This addiction now becomes hard to get rid of after a while. In recession or stressful times you’ve got to restrain yourself from getting into these habits. Abstain from impulse shopping to feel better. The best way to avoid getting into this funk is to identify the exact emotions that trigger those shopping impulses and confront these feelings of pain, frustration or sadness i.e. develop Emotional Intelligence. The truth is that you can’t shop your emotions away in reality – You have to face and deal with them.
14) Taking on more financial risk than is good for you
Never risk your future today. ”Never chew anything bigger than your throat can swallow”. Everyone has a threshold; don’t over extend on your capacity. This is also applicable to investment opportunities. Taking some risks sometimes can be a good thing for higher returns – BUT ONLY if you already have a secure and stable diversified investment portfolio.
NEVER RISK money that you won’t sleep if you loose. This simple means that you should only risk money that you can afford to loose. “Too many people’s future have been ship wrecked simply because they engaged in reckless investing”. Part of financial recklessness is copying other investors. As an investment rule never copy someone else’s investment strategy because it can be a HUGE financial mistake. Someone else’s judgment is not necessarily better than yours; determine what your own purpose and timelines for investing are and stay focused on these. Never take people at their word with investments because they may be lying or ignorant about what they’re doing and why.
15) Investing your money with a friend or family member can also be a major financial risk.
Invest only after you’ve done a due diligence in other businesses (And it makes business sense from empirical and intuitive evidence) outside of family and friends. Never Invest in a friend’s or family member’s business (Just because they’re friends or family) as this has been known over the years to be a terrible mistake and risky financial move.
Helping people i.e. Philanthropy must be separated from investing. The reason why you’re investing is to secure your future by making more money,
If your friend or family member needs investors introduce them to someone else and don’t guarantee them, advise them to do their due diligence and get some collateral in case of default.
16) Never invest in a Pyramid scheme
Beware of MMM: Recently many people invested in a financial pyramid scheme called MMM but months after the scheme went burst. So many others pyramid schemes have come and gone the same way. Likewise don’t get carried away when a particular investment is going good. Human nature tends to think this good streak will go on forever, so don’t sink ALL money into it. For particular investments, set a limit on how much money you are willing to risk and stick to it. Get a diversified investment portfolio don’t put all your eggs in one basket. Never gamble with your future. Never encourage behaviors such as gambling or substance abuse. Gamblers even when they win turn out to be worse off than before they win. Research on lottery winners is a testament to this fact. They always turn out much worse than they were before winning the lottery.
17) Not having a personal professional financial advisor and getting financial advise from just anyone
Get a professional financial advisor of financial coach. You go to a doctor when you need medical advice, an architect when you need to design a home, a structural engineer to help build your home or a physics teacher if you want to excel in physics. LIKEWISE you need to get financial advice from a proven and time tested professional financial advisor. Without a time tested professional advisor you could be heading for financial oblivion. A professional financial advisor should first assess your financial wellness status by diagnosing any financial illness, before he prescribes any intervention. Don’t take financial advise from your friend or family.
Also don’t take financial advise from your pastor or Imam, they’re there to give you spiritual advise. Financial and spiritual advice is on two different divides, one Godly (Spiritual) the other Worldly (Carnal) and as such the principles will vary. The difference between the principles is as far as the heavens are from the earth.
The spiritual says give; the carnal says keep and save. The spiritual says cast your bread upon many waters, for you never know which one will come back to you; The Carnal says invest wisely and know what your returns will be and where they will come from.
18) Taking a loan to fund your lifestyle
Don’t use borrowed money to fund your lifestyle. This is a very bad financial habit. You must ensure that even as a business man you are a salary earner. Ensure that you live within your means and stop taking loans to fund your lifestyle. This is also a kind of pyramid scheme that will disrupt your entire financial balance. It’s ok if you are borrowing money to invest or do a business that will generate higher interest than the interest rate your currently paying in the future. It is okay if you your loan keeps the principal intact and the interest growing but if you burrow to spend how are you planning to pay back?
It’s okay if you’re taking a loan today and getting into a business or an investment today at a discount instead of waiting till tomorrow when the cost will be much more. In a recession you are encouraged to have multiple revenue streams (at least 3 sources of income) even as you focus on your primary revenue source. So it’s okay to borrow or take a loan to invest in several businesses with stable and guaranteed income (But please do your due diligence).
19) Keeping up with the Joneses or Competing with other people.
Nigerians are so bad with this particular financial habit, we are known to keep up with the jones who are members of our family, friends, neighbors, colleagues and whoever is within our social purview. There is just something about trying to live the same lifestyle with others even though no two lives and lifestyles can really be the same.
When someone in our social circle buys a new car, house, watch, bag, shoes etc. we tend to feel inadequate and want to buy same just to prove that we are not being left behind. Contentment and personal peace is the key to Godly living and financial freedom. This bad habit of coveting what your neighbor has is a big sin – It will cause, unnecessary and unbudgeted excess spending. Unfortunately we believe that the grass is greener on the other side but in reality it’s not the truth because you don’t know how much debt the other person is in or how much they earn. Living beyond your means will lead you to financial trouble. “If this continues, you’re going to end up being bankrupt”.
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