Developing good financial habits is one of the secrets to accumulating wealth and becoming financially independent. The level of your income level does dictate how much wealth you can accumulate, but it just a means. It's how well you plan and use your income and revenues that helps you grow your capital base.
To gain financial stability, you need to plan and manage your finances well. You can grow your money and become financially stable by avoiding the following money mistakes.
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1. Accumulating Debts
Debts are good and can help you to grow your money. However, debts should be manageable and repayable. It is best practice to borrow that you can comfortably repay. Debts make you borrow to offset other cumulative debts continuously.
Also, it is best to borrow only when it is necessary. Borrowing to meet every need that you come across is a poor financial practice. Instead, you can save to meet the needs you have and save on the interests you would have otherwise paid on the debt.
2. Over Relying on Linear Income
Did you know that wealthy people invest a lot in passive income than linear income? A passive income is one that you do not need to continuously work for. Financial stable people do not rely wholly on their monthly or annual income. Adopt other means that can generate you an income and avoid relying on regular income only.
Read also: Excellent sources of passive income.
Look ahead at the time you will not be in a position to work and you will be in need of money. Think about your retirement or, God forbid, when you get retrenched. Passive income is a boost to your regular income and a financial security. For instance, if you have some rental houses, you do not need to work daily to earn income. You only need to ensure that the houses are occupied.
3. Failure to Budget
There is the old saying that goes, "failure to plan is plan to fail." Absolutely. Before you start spending, you need to ask yourself what you want to achieve. How much money to direct into savings and how much to spend? Answering these questions will help you to set goals and only spend on those things that are important.
Budgeting is critical in developing financial discipline and keeping you on your toes to focus on your goals. It makes one to spend only on important things.
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4. Not Minding about Tomorrow
My economic lecturer once told me that buying the things you do not need today will make you sell things that you will need tomorrow. It is best to live today, planning and thinking about tomorrow. Do not live today hoping that the cares of tomorrow will sort themselves out.
Make sure to set aside from your today's excesses for tomorrow. Tomorrow might be worse than today, and you may not have something to rely on if you didn't set aside anything. By any chance, it is best to sacrifice a better today for the best tomorrow.
5. Investing in Assets that Depreciate
Investing in assets is one secret that rich people have learnt. There are many types of assets; some appreciate while others depreciate. Make sure to invest in those assets that appreciate for a start. If you start with assets that depreciate, at the end, you will be poorer than you were in the beginning.
Among the assets that you invest in include properties like rental buildings and land.
Read more: Real estate properties to invest in.
6. Waiting to Start
Did you know that successful people start with what they have? I heard someone say; "I will start saving when I get a salary increment." Other people will tell you that they are waiting to start investing when they accumulate enough capital.
Don't wait for things to get better to get started with your investment journey. Situations might never get any better and as you grow old, responsibilities add up. Chances are your today is the best day to start. Start where you are with what you have.
7. Raising Your Expenditure with Income Increment
Imagine getting a salary increment and then moving to a better and more expensive house. What is the outcome? You will spend the amount you could have otherwise saved or used to secure assets that appreciate. It will lead to the vicious cycle of poverty and you will never make any successful move. You will stagnate in the same financial position forever.
By rule of thumb, assume you didn't get the increment and direct it to savings or gainful expenditure. At the end, you will have accumulated enough to invest and grow your income.
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8. Living Beyond Your Means
Some people live to please others or to get praised. If you live to impress people, you will spend all you have and a time will come when you will have no more to spend. If you can't afford something, don't borrow to get acquire if it is not necessary.
Some people buy luxurious things or live a fancy life to look rich instead of improving themselves. Think about investing and saving and someday, your sacrifices will pay off.
Likewise, it is best to start small. Refrain from starting high. Chances are that you will fall and the impact will be more significant. Starting small gives you time to grow your revenues and prepare for unforeseen risks and threats.
9. Failure to Save
Saving is an important in gaining financial independence. Savings helps you invest and prepare for emergencies. The rule of thumb is that you save at least 10% of your income. Once you have saved, you also need to invest. Investments are important in growing your money. You can open a savings account and if possible, with a Sacco.
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You can make a living and grow to become wealthy if only you take the right steps. Make better decisions and focus more on long term goals. Consistently improve yourself, learn more and grow your sources of income. More important, patience pays. Give your investments time to grow.