One day on a cool weathered Thursday, I strolled down stairs of my office into a jewelry store just to assess the prices of things. On getting into the store, I noticed a well-dressed young man purchasing a Rolex watch. I noticed that a Rolex watch has become a symbol of success among young men. This man was purchasing a relatively inexpensive $3,000 Rolex (many sell for over $20,000), and yet, when the receipt was written up, I noticed that it was for $10,200. I thought there must be some mistake, but it turned out that the price of the watch was $30,000. But this man had purchased the watch with $1,500 down payment and a balance payable for one year.
When he walked out of the store with that watch on, he was giving the impression that he could afford a Rolex wrist watch. Yet the question is, could he really?
We all make such mistakes in our financial life. In fact I made such a million times. I have seen and hold money but always, it disappear before my very eyes. Many of you have passed through that road and some of you are still passing through it right now. That is what I have learnt from my greatest financial mistakes – though it has taught me a lesson to teach you.
Many of my friends and readers who have come in contact with me have asked me many times what is the biggest financial mistake one could ever make, and the answer is - a consumptive lifestyle.
A consumptive lifestyle is simply spending more than you can afford, or spending more than you should. Most people fall victims of living a consumptive lifestyle. The illustration of the man purchasing the Rolex wrist watch is all too common.
Incidentally, I have observed that the more television a person watches, the higher lifestyle the person is apt to desire. Television advertisements are extremely sophisticated and effective. In a similar way, the more time you spend in a shopping malls, the higher lifestyle you are apt to want because you are surrounding yourself with temptation.
The second most common financial mistake we make is in the area of budgeting. If you have no budget, which is in effect a short-term plan, you are in reality planning to live as a spender. Women tend to buy responsively – shoes, bags, hats, dresses, but the problem with being a spender is not all a female problem; men tend to do even more – new girl friends to manage, new drinking joints to visit and the likes.
The idea of living on a budget is distasteful to almost all of us because we view it as constraining. A budget can be one of the most financially freeing thing you can have. A budget guides you and tells you when you are on course, just as a road map does when driving in an unfamiliar city. Not having the map create fear, perhaps frustration, and certainly anxiety. The same can be said about living without a budget.
The third common financial mistake we make is in the area of buying and selling automobiles if you are in that class bracket. This is because the least expensive car you can drive is the one you presently own. Selling your car to buy another is incurring extra cost that could rather be put into a profitable investment.
One of the ways to decreased expenses most dramatically is by merely deciding to continue driving the car you presently own. If you can repair it and maintain it yourself, you will, over time, have substantial cash flow savings that can be invested for the future rather than consumed in the present.
One other common financial mistake is debt. Debt and lifestyle go hand in hand. When you use debt to fund a consumptive lifestyle, not only do you have the consumptive lifestyle working against you financially, but you also have the additional burden of the debt working against you. Debt should be avoided like a plaque especially if you are not using it for productive purpose but for consumptive purpose. Civil servant has embrace this lifestyle of “gbese”, which at the end of the month crushed their full month labour in derision.
Whatever you don’t have money to purchase at that material time for consumption is not meant to be consumed – period! Avoiding the use of debt is incredibly difficult especially in an era where one is not sure when the next salary will be paid; but it can be learn.
The only absolute way to avoid the use of debt, in the first place, is to have a financial plan prepared at the beginning of each year that does not allow for the use of debt, and that you will stick to through self-discipline. If you don’t know how to prepare a financial plan, pay somebody to do it for you, it will save you more money than you pay the person.
The major problem most people face is how to get out of the debt that they are already in. There are only two ways to get out of debt after making the decision to avoid the use of debt. Examine the assets you have to see which one could be sold in order to reduce debt; and in the absence of assets to sell, set up a repayment schedule and strictly adhere to it.
In determining which assets to sell in order to reduce debt, remember that the assets sold should have a lower yield or appreciation rate than the debt cost. Though not everyone has the luxury, however, of selling assets to repay debt. Because many of you are perhaps deeply in debt and have no assets at all. In fact, statistically, 70% of borrowers, owe more than what they own; therefore, selling assets is not an option.
The only option, then other than receiving an inheritance or striking oil is the slow, painful, and difficult process of making monthly payments. You must decide, first of all not to take on any more debt, and second, to set up a schedule of debt repayment.
I recommend that, rather than a debt consolidation loan, you go directly to your creditor with the schedule in hand of how you are going to repay the debt. Then, do two things: pay something on each debt each month so that the creditor knows you are serious. Secondly concentrate on eliminating the smallest debt first.
These are “most common” financial mistakes each of us have made in the past or will make if you don’t heed to my advice. There is a saying that “experience is the best teacher”, but in most cases, it could be the worst teacher. Though all depends on how you use the experience to advance your life.
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