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Four biggest financial mistakes

Four biggest financial mistakes


Here is a small exercise that I often conduct with those who complaint about not having poor financial conditions because their income is insufficient, or they are unable to save sufficient money at the end of each month. The exercise is slightly long, but it has many important life and money lessons for everyone. Here is how it goes.

 

Think of two men Mr. X and Mr. Y.

 

Mr.X is a small bank clerk and earns Rs. 10k per month, and Mr. Y is a well to do self employed guy who earns Rs. 50k per month.

 

Looking at the above information we can make two conclusions, first, there is a slim chance that Mr. X will ever own a car, wont spend on new clothes frequently cannot afford to go on exotic destination on vacation.

 

On the other hand Mr. Y who earns well, can afford to have all these luxuries. He drives a fancy car, travels to exotic destinations and can afford ti have dinner at the most luxurious restaurants. right?

 

Now, let me add one more piece of information to this, Mr. X who seems to look like a poor man and cannot afford to live a luxurious life saves Rs. 5k per month, on the other hand, Mr. Y who looks rich ( and lives like rich) can afford to save only Rs. 2k at the end of each month.

 

Tell me now, with this information available, who will be richer? If you do some number crunching, going at the same pace, in the next 10 years Mr. X will be able to save Rs. 6,00,000 in the next 10 years, while Mr. Y will be able to save on Rs. 2,40,000.

 

As you can see, despite five times earnings, Mt Y still lags far behind behind in making a meaningful corpus for the future.

 

This sounds very simple and common sense, but is a very powerful lesson everyone must keep in mind. Most of us always delay saving for future as we always think our income is insufficient to make meaningful saving and once we reach a decent earning, we will start saving.

 

So what does this tell us about the financial mistakes we make? Here are some important ones.

 

Mistake 1: It does not matter how much you earn, what matter is how much you are able to save that determines your financial future.

 

Mistake 2: Our society measures our financial prosperity on the basis of how much we spend, person with a luxury car, a big house, fancy holidays is assumed to be richer than a person who does not spend on all of this. No wonder why Mr. X was seen to be poor despite being able to save more, while in the future he turned out to be richer than Mr. Y. Its similar to trying to guess the size of an ice berg by looking at its tip.

 

Mistake 3: Most of us spend money not to keep ourselves happy, but to prove to society that we are rich, this is the reason why we go to any lengths such as maximizing our credit card debt, taking high interest loans, just to make ourselves look good in the eyes of the society.

Unfortunately, all of this takes a huge toll on our financial life and keeps us poor. Also, easy availability id another reason why we often do not think twice before applying for a loan.

 

Mistake 4: Most of us value today’s proceeds over a secured future. The truth is your future depends on how you manage your finances today. Whether you are willing to sacrifice today’s luxury for tomorrow’s safety and prosperity, or do you want to enjoy today and regret the future, the choice is yours. Remember, the older you get, the number of sources of income will start drying up, and if you are not secured by then, there is a chance you will die broke.

 

Conclusion:

 

If you think, being rich requires you to become a miser, let me tell you, being conservative does not always mean being a penny penny-pincher, all you have to do is learn to differentiate between what you need and what you want.

 

Hope my answer was helpful

 

Ref : https://www.quora.com/Whats-the-biggest-financial-mistake-you-see-people-make-all-the-time

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Categories : Finance    Themes : Wisdom
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