Listed below are some financial behaviors that not only constrain most individuals wishing to increase their wealth, but also keep them in poverty. Individuals seeking financial freedom must abandon these negative financial attitudes immediately, or even avoid them in the first place in order to put them at a financial advantage.
Long-term employees
Although being an employee earning a sustainable income is an important step to achieve financial freedom, throughout history, we have learned that most wealthy people have one thing in common, which is that none of them were employed full-time forever, but tended to be investors or entrepreneurs. Of course, for those who want to start accumulating wealth from scratch, we do not deny that staying a full-time employee should be a first step to gaining a sustainable income to pay our daily expenses, but must be utilized for saving, future investments, and retirement, and shouldn’t be a lifestyle.
Individuals who want to accumulate wealth must be aware that staying with a monthly salary for a long time may prevent them from developing or seeking another income. Some reasons why those wealthy people are not full-time employees are that they prefer to spend most of their time on their businesses or investments, in which they are continuously seeking new opportunities, analyzing or structuring their investments.
Individuals who are employees tend to be used to receiving a monthly salary for their work. Unfortunately, that salary usually only allows for living in relative comfort, taking vacations, and paying bills.
Therefore, almost no one became wealthy while on an employee’s salary. Therefore, to achieve financial freedom, we must turn our monthly income into an investment or building our own business.
In many cases, some may spend years of their lives waiting for a monthly salary to increase, even when working overtime and giving their best, but their bosses only increase salaries to prevent employees from moving to another company, not because they deserve it. If you want to achieve financial freedom, then you must use your position as an employee to generate a sustainable income in order to build your own business or invest.
Lending casually
It’s often difficult to refuse to lend a sum of liquidity or co-sign a lease for a close friend or family member. However, denying lending and keeping these boundaries can be an important way to prevent financial losses, and most importantly, deny liquidity from coming between you and loved ones.
Financial loans to friends or family members have negative impacts on both sides. Among the most common reasons why a relationship may be damaged were lending liquidity, co-signing a loan or other financial product. In 2019, 60 percent of Americans have helped out a friend or family member by, for instance, lending capital with the expectation of being paid back, while 17 percent have lent their credit card and 21 percent have co-signed for a financial product, such as a loan or rental.
Unfortunately, more than 35 percent of who participated were negatively impacted, resulting in financial losses, a damaged credit score or harmed relationship. The disadvantages of lending to friends or family members are many; among them are the risks that they will not repay the loan or will not take your service seriously. Considering that if your family does not want to repay your loan, you will not seriously demand your capital back. And if you are seriously asking him to repay, then you will damage the relationship with him.
No matter which way you do business with a member of your family, the result, most of the time, will be negative. Instead of lending your own liquidity, for instance, it is important to extend advice about available loan options or help them increase their incomes or work out a personal budget. Rather than lending your personal credit cards, you should discuss secured credit cards that can help them begin building credit.
Gambling
Gambling is when an individual stakes something of value, knowing that there is risk and a hope of gain, on the outcome of a game, a contest, or an uncertain event in which the result may be determined by chance or accident or have an unexpected result by reason of the bettor’s miscalculation. Slot machine play is one of the most popular forms of gambling in the world and also potentially one of the most harmful.
Gambling comes in different forms, and includes lotteries, instant lotteries, Lotto and Keno, sports betting, horse betting, poker and other card games, roulette and craps, bingo, and electronic gaming machines. And most importantly, investing in unregulated assets, such as cryptocurrency or even stock without basic knowledge of investment, is also a form of gambling, to some extent.
The key disadvantage of gambling is that for some people, gambling can be addictive. Like any addiction, such as alcohol, gambling addiction can be a serious problem that can cause both financial and personal harm. The damages from gambling aren’t not exclusive to financial loss; it can also lead to long-term damage, such as a loss of self-esteem, relationships, physical and mental health, work performance and social life. Further, gambling can not only harm the person who gambles but also family, friends, workplaces and communities. Basically, gambling can destroy an individual’s future.
Financial illiteracy
There are common mistakes that first time investors have to be aware of before they commit to investing in stocks, cryptocurrencies, or creating their own business. Individuals must not start investing for the reason that the basics of investing are simple in theory. Sometimes we hear about the concept of buying low and selling high. However, most people do not know what low and high really mean.
Most, if not all people learn how to drive a car first before being granted a driver’s license to drive on the street safely. It is not safe for someone who doesn’t know the basic rules of driving a vehicle. The same rule applies for investment. Individuals must learn and know how to invest, most importantly, without risks, in order to generate profits when investing.
Before investing in stocks, you should at least learn some of the critical investment metrics, such as book value, dividend yield, price earning ratios, and so forth. It is also important to understand how they are calculated, where their major weaknesses lie, and where these metrics have been for any stock and its industry over time.
Some people also lack knowledge concerning how to pay for interest fees on their credit cards, how taxes work in their country, and why companies reduce certain amounts of their salary every month. Financially illiterate individuals must wonder how they know that they are not being scammed if they do not have a knowledge about what the companies are using their part of income on.
Financial education enables people to better visualize their opportunities, select smart decisions, know where to get help, and take a right action to resolve conflicts. Gaining knowledge about a credit card for instance, teaches users that loans and credit cards, in general, are a problem instead of a solution if they were not for a specific purpose.
In 2008, at the end of his 13-year career as a basketball player, Antoine Walker had amassed 108 million USD. Two years later, he lost all the wealth that he had accumulated. When Walker started accumulating his financial wealth, he didn’t understand the concept of positive financial attitudes, as he admitted in an interview on Bloomberg Television. He also picked up some aggressive spending habits, such as spending on cars, clothes, and jewelry, and helping family and friends financially. The rest of his financial wealth was lost in real estate investment when the market tanked after the financial crisis of 2008, which led him to declare bankruptcy in 2010. In hindsight, learning how to diversify his portfolio and avoiding aggressive spending would have saved him most of his financial wealth.
When it comes to financial investment for most financially illiterate investors, they depend on advisors on selecting their portfolios. And most financial advisors are recommending them to invest in a diversified portfolio of stocks, bonds, and mutual funds, for instance. This advice focuses on the conventional wisdom that if one part of an investor’s portfolio is decreased in value by bad market conditions, then the financially illiterate investor will be able to hedge with other parts of their portfolio.
Diversification is the easiest way to help investors with no financial education to manage their risks. In reality, diversification exposes them to some extent of losses. And if you want to accumulate wealth, you need to understand why diversification comes with disadvantages.
Most often, what most financial advisors consider as diversification isn’t a diversification. Rather, it is spreading capital across one asset class. Investing in the same asset classes, such as stocks, bonds, and mutual funds are all part of the same asset class-paper assets, is not true diversification, but rather specialization, which exposes investors to greater risk. In the event of a total collapse of the paper asset sector, deep recession, or depression, all investors’ assets will be lost.
To avoid losses, individuals who want to accumulate wealth through investment must educate themselves, by acquiring financial knowledge to become intelligent investors. Through basic financial education, intelligent investors gain the awareness of four asset classes¾paper assets, real estate, commodities, and business. A truly diverse portfolio would have stakes in all or most of these asset classes.
Being financially literate puts investors at an advantage to use diversification as a hedge investment strategy by utilizing knowledge of diversified investment over all four asset classes, not just mistakenly with the same paper assets and believing that you have a diverse portfolio. That, at least, will protect you much better from a total loss of your wealth should one asset class decrease. However, diversification is only required when investors do not understand the financial market.
We suggest to those who want to become intelligent investor, before entering into the financial market, they must enroll in some stock-option courses and day-trading seminars. Read books on the subject. Began to watch television broadcasting financial topics and read articles in order to learn and stay up-to-date on what’s happening in the world of stocks, bonds and derivatives.
Lack of financial goals
At the core of a human being’s life is their purpose or goal. Everything in life must be aligned with a goal if one is to act with coherence and integrity in the world. To support their purpose and minimize destructions, people have to know their goal in life and have discipline in their attitudes.
You are the only one who can decide what is important to you in this life. You are the only one who can clarify the purpose you want to achieve in your life. If you decide that the purpose of your life is to achieve financial freedom, then you have to introduce financial self-discipline. And self-discipline is when your highest desires rule your lesser desires.
Having a goal is different to having a vision. Having a vision allows to a clear picture of how you see your future or where you want to be. A goal is set as a specific target that move you towards your vision. A goal can be set, for instance, for feelings, results, skills, knowledge, new job, and physical and mental training. As we set our goal, we achieve them, and every goal that we achieve ourself boosts our confidence and self-esteem.
For instance, you might set goals saving every month or every year, depending on how much income you want to generate. Then, you have to discover how much you can earn extra in your existing job. When you set a goal for yourself, you can identify how to achieve it, and when you achieve your goal, you are moving towards your vision. Your goals are the steps to turn your vision into a reality. Individuals with a vision of accumulating wealth can achieve their goals more easily than others. In fact, the best way to save and increase income is to have a goal to save that income.
The majority of the people who do not have a goal with their savings will often never have any financial savings. They tend to live from day to day and enjoy the present moment. Also, if you don’t know what your financial goals are, you can’t start working toward accomplishing them.
For some who have achieved the title of a billionaire, whether aspiring or otherwise, the road to accumulating wealth is all about how much capital is in the account, the need to buy fancy and expensive products and to put their families in a better financial position for the future generations.
However, others have a larger goal of becoming as wealthy as possible to inspire other poor people in turn.
Their aim is not about the financial wealth or owning expensive products, but rather about the title of being wealthy. But what does that mean? How they accumulated their wealth is important for them to tell their story. What was their road to accumulating wealth? The point is about the other generations are told that going so far is impossible. Well, poor people can see that becoming wealthy is possible. By knowing people from their own communities who have become wealthy, they can see with their own eyes how someone did it, while they can also talk to them in a way that they can understand and learn.
The first thing you must start with if you want to accumulate wealth is to know the reason why you want to build wealth. We have already mentioned a few reasons why people want to accumulate wealth.
Late investment
Investing at any age is essential to better financial management as it ensures both present and future financial security, not only to enable an investor to benefit by earning financially, but also to help them earn another income stream in the long term. Investing is the only way to obtain a passive income and increase wealth.
However, the earlier you invest, the faster you compound wealth. Some may say that the right time to invest is during or after you complete university. However, by investing at an early stage of life, individuals can develop a pattern of financial independence and discipline. With early age investments, you develop a habit of saving more. Historically, young investors have a greater risk-taking ability than older investors. Adult investors are generally conservative and prefer stability, in turn avoiding high-risk investment avenues.
Early investments will result in higher compounding returns over a period of time. For instance, regular investments made right from an early age can generate huge benefits at the time of retirement. For instance, Warren Buffett, a value investor, learned to invest in 1941, when he was 11 years old. After an 80-year career, in 2022, he is among the wealthiest individuals in the world.
Individuals who make early investments increase the probability of reaching financial stability at a young age. Saving for retirement from the age of 20, rather than from 40, is advantageous.
Generally, a lack of investment means that an individual plans to live only with a monthly salary and that have no plans to retire until the retirement age, which is above 60 years of age in most countries. If you want to retire early or become financially independent, investing is the way to achieve it. Although any investment is better than none, however, you must learn and choose the investment carefully.
Investors must remember that the higher a return offered by an investment opportunity, the greater the risk of financial loss. To reduce risks, it is wise to say that in order to build and protect wealth, individuals must seek to hold a mix of high-return and low-risk investments, particularly when investing in financial assets. We explore more details about investment under the investment approach section at the end of chapter two.
A single source of income
Most people who are living only on a single source of income, for instance, an employee’s salary, may probably feel comfortable with what they have. However, not seeking other sources of income means no aspirations or goals to achieve financial growth.
It is fair to say that most individuals who depend on their salary feel financially well off with their income, and it allows them to have a quiet life. However, for those who want to achieve financial freedom, we strongly believe that having at least two different sources of income eventually enables financial independence, which thus alleviates the risk of them losing their main income source, such as a salary.
On average, those who build wealth generally have more than one source of income. Hence, it is likely that they have learned that diversification and creating multiple streams of income is the key to long-term wealth creation. This is the key to achieving what the majority of people dream of¾financial freedom.
The economy takes wild swings beyond anyone’s control, and unfortunately, for most people, their only source of income is from their job. When that reliability disappears, they may find themselves in serious financial trouble.
To learn more about financial habits and investments, you can purchase THE FIRST INVESTOR book and receive a discount by clicking on The First Investor.