4 Critical Mistakes Leading to Financial Failure

Creating financial freedom is hard work. You need to stay laser focused, disciplined, and put in a lot of effort. It’s not easy to become wealthy. On the other hand, going broke is really easy. In fact, it’s so easy that most of us are just one slip up away from it.

But here’s some good news: you can avoid going broke by being proactive. Here are some quick ways to go broke and what you can do to avoid them.

1. Living Beyond Your Means

Many of us fall into this trap, influenced by our consumer-driven society and the pressure of showcasing success on platforms like Instagram and TikTok: “Look at me, look at how successful I am!”

Here are some instances of living beyond your means:

  • Being “house poor,” where you have a lavish home but struggle to afford the hefty mortgage.
  • Relocating to your dream city without the income to sustain your lifestyle there. This is a big one.
  • Splurging on an expensive car just to impress others.
  • Overspending on travel, beyond what you can actually afford.

Instead, make it a habit to spend less than what you earn.

2. Making Bad Investments

Investing is a smart way to make your money grow. But, you need to watch out because there are plenty of bad investments out there!

For instance, be wary of multi-level marketing (MLM) schemes. While some direct sales companies offer a chance to start your own business with the backing of a recognizable brand, many MLM setups are ripe for scams. Always do your homework before committing any money.

A simpler option for investing is using apps like Robinhood. Whether you have a little or a lot to invest, Robinhood lets you get started easily. It’s well-known for not charging commission fees and allows you to buy and sell stocks without any restrictions. Plus, it’s user-friendly.

What’s cool is that when you download the app and fund your account (which only takes a few minutes), Robinhood gives you a free share of stock. It’s random, so it could be worth anywhere from $5 to $200. It’s a nice bonus to kickstart your investment journey.

3. Not Budgeting

Worried about going broke? Not a fan of budgeting? Give the “budget for people who hate budgets” a try. The 50/30/20 method is one of the easiest ways to manage your spending without getting bogged down in complicated spreadsheets or making drastic lifestyle changes.

Here’s how it works: Start by taking your total monthly income after taxes and divide it in half. That 50% becomes your essentials budget. Then, take the remaining amount and split it into personal spending (30%) and financial goals (20%).

Let’s break it down further: The essentials budget covers necessities like utilities, groceries, medications, and minimum debt payments. The personal spending category (30%) is for things like takeout meals, entertainment subscriptions, or seasonal decorations.

Finally, the remaining 20% is allocated to financial goals such as paying extra towards debt (more than the minimum) and saving for retirement or other investments. It’s a simple yet effective way to manage your money without feeling overwhelmed by traditional budgeting methods.

4. Burning Money on Credit Card Interest

With the high unemployment rate, many Americans are struggling financially and relying heavily on their credit cards, which often come with sky-high interest rates exceeding 20%. These interest charges can quickly eat into your income, making it difficult to make any meaningful progress in paying off debts.

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