Came across this article by Nick Maggiulli…Food for thought….
Mistakes are not only the foolish things that we do, but also the reasonable things that we don’t do. As the saying goes, “You miss 100% of the shots you don’t take.” This is why sins of omission can be just as damaging to your finances as making bad choices.
Cutting Spending Instead of Raising Income:
The default advice when it comes to building wealth is to cut your spending. But, this is the biggest lie in personal finance. Why? Because cutting spending has its limits. You do have to eat after all.
On the other hand, there’s no upper limit when it comes to raising your income. This is why focusing on income growth is far more important than spending cuts when it comes to building long-term wealth.
So, find small ways to grow your income today that turn into BIG ways to grow it tomorrow.
Not Thinking Like an Owner:
If you want to build real wealth you need to be an owner. It doesn’t hurt to start thinking like one either.
Overemphasis on Small Wins vs. Big Wins:
The emphasis on small, inconsequential money wins can keep people from focusing on the bigger picture. It’s okay to celebrate small wins, but don’t ignore the biggest impact decisions when doing so.
Timing the Market:
No one knows the future or where the market is going. 2020 taught us that more than anything. Being right about something and making money off of it are two different things. The differentiator is timing.
This is why so many short sellers have been burned during this bull run. They may be right, but that isn’t enough. To make money as short seller you have to know when you are right as well.
Don’t time the market.
Borrowing Too Much:
They say it takes money to make money, which is why borrowing to invest can be such a profitable strategy. Unfortunately, if things go south, you could lose it all.
Remember, the only guarantee when it comes to borrowing money is your monthly payment.
Paying Attention to Other Peoples’ Finances:
Some people are going to be richer than you. Some by skill and some by luck. But you shouldn’t worry about them because they aren’t your competition.
Just focus on how you are doing relative to your financial potential. That’s the only one that really matters anyways.
Too Much Lifestyle Creep:
Some lifestyle creep is fine, but the data suggests that spending more than 50% of your raises pushes your financial independence further away. The reasoning is simple—every rupee you don’t save is a rupee you spend.
Therefore, unless you expect to decrease your standard of living in retirement, every rupee of lifestyle creep extends until death. This is why you need to make sure to keep it under control, before it takes control of you.
When good fortune comes, enjoy it. But don’t forget about your future either.
Investing in Products you Don’t Understand:
If you can’t explain it to a five year old, then you probably don’t understand it. And if you don’t understand it, then you are probably taking risks you can’t even imagine.
Keep it simple and buy simple investment products.
Paying Too Much in Fees:
Fees are the silent killer. As Dividend Growth Investor once tweeted:
If you invested $1,000 in Berkshire Hathaway in 1965, by 2009 your investment would have been worth $4.3 million.
If Buffett had set up Berkshire as a hedge fund, and charged a 2% annual fee plus 20% of any gains, the investor would have been left with only $300,000.
That’s a 10x difference because of fees! Sometimes, fees can be justified if your are investing in an illiquid asset class. However, those kinds of assets shouldn’t be the bulk of your portfolio. So keep your fees low.
Obsessing Over Not Having Enough Money:
Only about one in six retirees sell down their assets within a given year. In fact, many more leave behind hundreds of thousands of rupees in inheritances. As Michael Kitces brilliantly noted:
The 4% retirement rule has quintupled wealth more often than depleting principal after 30 years!
Don’t spend your life worrying about money only to let someone else enjoy it.
