Avoiding Mental Money Missteps

On this episode:

What are mental money missteps? They’re subtle errors in judgement. Basic oversights and miscalculations. As a rule, they tend to be subtle and easy to miss. These are the kinds of mistakes just about anyone can make, and this episode will show you how to avoid the most common mental money missteps.


[01:24] What is a Mental Money Misstep

[02:16] Mental Money Misstep #1: Forgetting to Plan for Unexpected Expenses

[06:11] Mental Money Misstep #2: Being Too Afraid of Risk

[09:27] Mental Money Misstep #3: Letting Pride Foolishly Blind You


Episode Transcript:

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[00:00:01] According to a Federal Reserve study, millions of Americans are just four hundred dollars away from a financial hardship, even though 75 percent say that they're OK or living somewhat comfortably. The cause of this may simply be found in the mental money missteps that so many of us can be prone to take. What our mental money missteps, their subtle errors in judgment, basic oversights and miscalculations. As a rule, they tend to be subtle and easy to miss. I'm not talking about big mistakes like taking on a bunch of dad or spending more than you can afford or are being too risky with your investments. None of these are the kinds of missteps. Just about anyone can make, even if they're intelligent and hardworking. On this episode, we'll help you identify and avoid common mental money missteps. Welcome, the money moves. I'm your host of Alias Sylvia. My goal is to share practical insights about business worth and money so you can design your financial future and enjoy life on your terms. Now let's get moving. Not too long ago, I met a young man who asked a very simple question why can't I ever seem to get ahead financially? Sharing a bit more about himself, he continued. I'm a college graduate. I have a good job. I pay my bills on time. I don't use credit cards. I don't spend money on frivolous things. So lacking it, I ever really get ahead. Fortunately, after a deep dove into the state of his finances, we found the answer he made to many of what I like to call mental money missteps. There are a few common missteps which I want to share with you in the hopes that you can avoid making these mistakes and keep yourself on firm financial footing. [00:02:04]

[00:02:05] So let's discover the three most common missteps and how you can avoid them. Mental money misstep, no one forgetting to plan for unexpected expenses. We all know the line. Expect the unexpected. But how often do we actually do it? The fact of the matter is, many people do a good job planning for expected expenses like mortgage payments, health insurance, gas and groceries. But when it comes to saving for the future, whether for your retirement or just that trip, you've always wanted to go on. We tend to forget about all the unexpected expenses that life tends to throw our way. And that's a mistake, because a plan that assumes nothing will ever go wrong isn't really a plan at all. It's more of a prayer. With that in mind, here are five very common but usually unexpected expenses that many people fail to plan for. Number one. Unemployment. Sure, no one wants to think about losing their job. But what if the economy goes south? What if the company you work for, it gets bought out? What if you or family member gets sick and it becomes hard to work your normal hours? You have to admit none of these events are exactly unheard of. So ask yourself, do you have a plan for what to do if you lose your job? Do you have any fallback options lined up? Do you have enough money saved out to help you stay afloat until you get back on your feet? Number two, long term or life changing illness? If there's anything unpredictable in life, it's our health. But even if you have health insurance, an extended illness can drain your savings in a hurry. Number three. Car repairs, you know, will happen one day. The strange Conklin Sound you start hearing from your engine ends up being a problem that will cost hundreds, maybe even thousands to fix. [00:03:59]

[00:04:00] And if it happens more than once. Number for your bills. Keep going up. What goes up does not necessarily go down. Anyone who's ever paid for an Internet connection or satellite TV knows that prices tend to rise over the years. Your basic utilities are prone to price fluctuation as well. A really cold winter means that your gas or electric bill will go up if you have children in the house who keep leaving the lights off. And you know, Christi, Bill below. I mean, you get the picture. Number five, household repairs. When the toilet clogged, the faucet leaks. When a window breaks or the roof starts to degrade. When wood boring beetles invest the tree in your backyard unless you really like to do it yourself. That means paying for a professional who usually isn't cheap. The point of all this is a show that unexpected expenses can come in any time in many different forms. What's more, they can really pile up in a hurry in most cases. Even know that you're trying to be prudent with your money. You can still have trouble getting ahead because you're always having to allocate more money than you expect to deal with expenses. And you're probably not alone. According to a study by the Pew Charitable Trusts, more than 70 percent of Americans find it hard to save because of expenses they didn't plan for. So what's the solution? Start a rainy day fund or an emergency fund? When most people say they tend to just throw everything into one savings account and withdraw money whenever they need or want to. Instead, I suggest creating separate type of savings account, one that can only be touched whenever the unexpected happens every month. Devote a set percentage of your income to the rainy day or emergency fund. [00:05:44]

[00:05:45] In addition to your regular savings, then when your car inevitably breaks down, you don't have to worry about it interfering with the vacation you've been saving for because you've already set aside the funds to deal with it by making the list of possible expenses. In addition to your regular expenses that you've already planned for, you can make real progress in regards to getting ahead financially. Mental money misstep. Number two, being too afraid of risk. Most investors know how important it is to invoice. Taking on more risk than they can afford. That's why advisors like me spend a lot of time going over concepts like risk tolerance with our clients. After all, no one wants to get burned by a bad investment, end up losing a hefty chunk of their nest egg or savings. But did you know that it's possible to be overly risk averse? Some investors are so afraid of losses, they end up missing out on opportunity after opportunity. And in the end, simply don't have the funds they need to accomplish your financial goals. When that happens, they really know better off than the investor who risks too much. Are they? Take this example. Imagine two relatively young investors, both in their mid thirties and let's call one Jim and the other Alice, both Jim and Alice. No, they need to save for retirement and decide to invest five thousand dollars per year for the next 30 years. Unfortunately, Jim is extremely cautious to the point of timidity. He's so anxious to avoid risk that he decides to put most of his money in to see these or certificates of deposit. Now, see, these are traditionally seen as fairly safe. So Jim feels good. Alice, meanwhile, is also cautious, but decides to invest more heavily in stocks over the next 30 years. [00:07:38]

[00:07:38] She sweats the ups and downs of the markets like most of us do now. Fast forward 30 years. Both Jim and Alice are in their mid 60s and getting ready to retire. For simplicity's sake, let's say that Jim earned about 2 percent interest a year on his retirement savings. When you factor in compound returns, Jim ends up with about two hundred eleven thousand dollars. Looks pretty good at first blush. Alice, on the other hand, ended up earning about 7 percent annual return. Some years were higher, some were lower, but the average is seven and this is a very fairly conservative average. But it makes things easy to calculate for us in this example. Now she ends up with almost five hundred and ten thousand dollars. That's over twice as much as Jim. That means she has a lot more money saved up for retirement and a lot more to apply to her financial goals. All because she was willing to take on a little more risk. The same principle applies to retirees, too. Of course, retirees can invest more conservative leading younger investors. But again, that doesn't mean nations sacrifice all potential for growth. You see, many retirees often discover that the money they save can dry up pretty quickly, specially from things like rising medical costs. Retirees need income and allocating at least a portion of your portfolio for growth is a good way to generate that income. That means accepting at least some risk even when you're retired. The fact of the matter is that all of vesting involves some risk. It was crucial that you avoid taking on too much. It's also also important not to take on too little. So as you save and invest for the future, take time to determine not only how much risk you can afford, but also how little. [00:09:25]

[00:09:28] And finally, mental money, miss step number three, letting pride foolishly blind you. Will Rogers once said too many people spend money, they have an earn to buy things they don't want to impress people they don't like. It's been said that men never want to ask for directions, but that's nothing compared to men and women who never want to admit that they've made a mistake. Never want to admit that they don't know something. And never want to admit that they may not own or have the money to buy something that their peers have and never accept advice. And that's especially true when it comes to your finances. Now it's all driven by someone's pride. You see, it's not often that you hear the word pride associated with financial matters. But there is a connection all the same. That's because it's very easy to be too prideful when it comes to our money. And that's a shame because being too proud can be a dangerous mistake to make when your money is concern because it can lead to very poor decisions. For instance, holding on to bad investments for too long. Let's say there's a particular investment or company out there that you really feel strongly about. You put a lot of money into it. You've pinned many of your hopes and dreams on this particular stock. You've even bragged about it to your friends. But what happens if the investment turns out to be a bad one? Sadly, many investors would rather hold on to a losing investment than admit they've made a mistake. What all investors must understand, though, is that no one has a perfect track record when it comes to investing. And not making a mistake isn't the worst thing in the world. [00:11:05]

[00:11:06] What matters is how you react to that mistake. Spending money just to keep up appearances. Now I've seen this happen more times than I can count. Someone wants to buy a sports car or new boat just because the neighbor just got one or a coworker has one. Someone wants to go on a long, luxurious vacation just so they can host pictures of all the exotic places they've been to on social media. Someone wants to join a prestigious club just so they can be with the right people and thought of in the right way. Now, look, there's nothing wrong with wanting any of these things, but there is something wrong with spending money on those things if you don't truly want them, or even worse, if you don't actually have the money to spend before you know it. Vanity purchase can turn into a habit as we already discuss. And mental money misstep. No to this. That type of habit can seriously impact your long term goals. You know the stuff you really care about preferring to be wrong than right or ignorant than educated. Whether most men truly hate to ask for directions, I don't know. It's hard not to see why they would. Nobody enjoys admitting that they don't know something. A few people want to ask for help when they feel like they should be able to do something on their own. But here's the thing. Finances can be complicated. In this day and age, as so much to know, so much to plan for, so much to be wary of. Unless you want to spend the majority of your time conducting financial research, it doesn't make sense to think that we can do everything on our own. Even financial professionals like me rely on other experts to help with keeping our affairs in order. [00:12:45]

[00:12:46] That's why there's no shame in asking questions. Whatever. You don't know something. There's no shame in seeking advice when it comes to making an important financial decision. This is how the smartest people achieve success. What's more, it's how they stay successful. In the end, the old proverb pride goeth before destruction and a hearty spirit before a fall applies to more than just our souls and applies to our finances to. I hope you've gained some real value from discovering the most common mental money missteps so that you can avoid them in the future, even if you're guilty of them right now. See, the best way to prevent a slip is to have a plan and we'd be honored to help you create a plan for a prosperous and secure financial future. Visit financial security group dot com to schedule time with us. Remember, no matter how smart or hardworking we are. It's never too difficult to make a mistake or a misstep. But as you think about the different kinds of mental missteps we can make. Remember too that the mistake itself is not really what matters. What matters is how you react to it. Thanks for listening. I hope you enjoyed this episode if it provided you value and got you charged up to make some new money moves. Do me a favor and share it with others on social media. Use the hashtag money moves and you never know what kind of swag we'll send your way. If you're looking for the show knows links to resources and more visit. Money Moves podcast. Dot com. When you subscribe, I'll give you a free copy of my latest guide. The three key money moves to create wealth. Now as my way of saying thank you. [00:14:40]

[00:14:40] That's w w w dot. Money moves podcast dot com. Wherever you may be listening or however you may be listening. Thanks for making money moves part of your day. And remember, if you make the right money moves today, you'll be able to navigate your financial life without sacrificing your lifestyle so you can enjoy a prosperous future. [00:14:40]

About the Author

Evelio Silvera is a business development and financial services professional. Evelio is an best-selling author and acclaimed speaker and speechwriter with numerous national and international awards who has appeared on national radio and television programs and been featured in several publications.