How to Go Broke, Fast!

Going broke is not likely to be an objective that many people set out to achieve, but there seems to be some common money mistakes that many people make. We take a look at some of these tried and tested money mistakes as well as at some good advice dished out by others to help us avoid the financial skids.

The quickest ways to go broke:

Spending more than you earn – even though it may seem like common sense to spend less than you earn, it can be very difficult to actually do it. Credit cards and overdraft facilities make it even easier for us to fall in the trap of spending more than we earn. Maintaining a budget and keeping track of your spending will help you control this habit.

There are many ways to get ahead. The first is so basic I’m almost embarrassed to say it: spend less than you earn”. – Paul Clitheroe

Buying things you don’t need – Not differentiating between your needs and wants will see you spending on a whole lot of things that you may not actually need. We’ve all made impulse buys on items we didn’t really need. Spending for the sake of it will quickly send you broke.

“If you buy things you don’t need, soon you will have to sell things you need”. – Warren Buffet

Ignoring problems – If something is difficult or causing us stress, it can sometimes feel easier to avoid the problem than actually face up to it. Avoidance doesn’t fix the situation and when it comes to debt and interest payments, the longer a problem is ignored, the quicker it can spiral out of control. The first step towards dealing with money troubles is to put the figures down on paper and the second is to seek help from a family member, friend or a professional adviser.

A problem shared, is a problem halved”. – German Proverb

Not having a plan – It can be appealing to just go with the flow or make things up on the fly but planning has its advantages. Not only does it provide a framework and target to work towards, but it also give focus and incentive to follow through with the plan.

“If you fail to plan you are planning to fail”. – Benjamin Franklin

Procrastinating – Finance can seem a little boring and many people prefer to avoid or delay making financial decisions in favour or doing other more pleasure tasks. More often than not we find that what we’ve been procrastinating from, isn’t actually that hard, time consuming or expensive. As with most things, the hardest part is always the first step or action – often what follows is the easy part.  

“A year from now, you will wish you had started today”. – Karen Lamb

Living in the past – if you dwell in the past, or with decisions or mistakes made in the past, you can’t focus on the future and make positive progress. Learning to let go of the past isn’t always easy, but it’s a necessary step in order to make forward progress. In saying that, it is good to learn from past decisions, both positive and negative.

“Everybody’s got a past. The past does not equal the future unless you live there”. – Tony Robbins

Blaming others – It can be easier to blame others for an outcome rather than take ownership and responsibility for our own actions.

“It’s always easy to blame others. You can spend your entire life blaming the world, but your successes and failures are entirely your own responsibility”. – Paulo Coelho

Lack of communication – Money is a difficult topic to talk about, even with our loved ones. Many emotions and habits are tied with your money and you can quickly become defensive, embarrassed, fearful or angry when talking about it with others. It’s important to be open and honest about your money situation and habits with both yourselves and your loved ones.

“Most people do not listen with intent to understand; they listen with intent to reply”. – Stephen R. Covey

Letting your emotions drive your investment decisions  At some point, we’ve all made a spontaneous, emotional decision that we later regretted. Your personality type and emotions can cloud your investment decisions, leading to choices that are not in your best interests. For example, in a market downturn some investors might sell their investments at a low point, incurring losses. Feeling burned by the markets, many of them re-invest in seemingly less risky assets that produce lower rates of return, thus reducing their portfolio’s future growth potential or decide to re-invest in growth assets once they feel it is safe enough to do so again, at which time they’re investing at a high point. When it comes to our financial lives, emotions can be very expensive.

 “Never make permanent decisions on temporary emotions”. – Anonymous

Trying to keep up with the Joneses – There is no competition in life. Rather than worrying about what others are doing, how much they appear to have or to do, it’s better to keep focussed on your own life, goals and situation. You don’t need to keep up with the Joneses as the Joneses are trying to keep up with the Smiths and the Smiths are trying to keep up with the Taylors!

“Too many people spend money they haven’t earned, to buy things they don’t need, to impress people they don’t like”. – Will Smith

Not diversifying your investments – Rather than investing in a single asset, no matter how great of an investment it seems, it’s important to spread your risk by diversifying your portfolio with other types of investments. Without diversification it leaves you more exposed to a single economic event, so if the business or sector you’ve invested in fails or performs badly, you’re more likely to lose all your money. Diversification into other asset classes and investment types will help you ride the ups and downs of financial markets.

“Do not put all your eggs in the one basket”. – Warren Buffet

Making excuses – excuses are the invented reasons we create to defend our behaviour, to neglect taking a particular kind of action, or simply as a means of negating responsibility. There are many reasons why people make excuses, but fear is the generally the driving force behind our excuses.

“The secret to getting ahead, is getting started”. – Agatha Christie

Taking money advice from friends and family – It often comes with the best of intentions, but money advice received over the neighbour’s fence or at the backyard BBQ is not likely to be in your best interests. Good financial advice is made based on thorough understanding of your personal and financial situation, goals and objectives and time frame for investment among other considerations. What works for someone else will not always work for you. Following the herd and doing what everyone else is doing also doesn’t make much sense as not everyone else is in your shoes or has your unique personal and financial situation.

“Don’t base your decisions on the advice of those who don’t have to deal with the results”. – Anonymous