Everyone would like to know how to become rich, yet many people make financial mistakes every day that keep them from becoming wealthy—or at least from building up a nice nest egg.
What are the dumb things that get between you and wealth? These warnings from experts will help you correct your financial mistakes and watch your bank account grow.
not having a planned budget
Budgeting is a no-brainer. But failing to create a budget is one of the most common financial mistakes people make. It sounds simple, but people play fast and loose with their money, then wonder why they never discover the secret of how to become rich.
“Without a budget, it’s impossible to have control over your money and know where you are spending the majority of it,” said finance expert Kelan Kline of The Savvy Couple. “Without a budget, your money has no plan and will prevent you from building up your finances indefinitely.”
Being reactive instead of proactive
When you handle money reactively rather than proactively, you’re likely to make mistakes. If you want to know how to become rich, handle your money with a sense of purpose and make it work for you rather than spending indiscriminately.
“One thing that keeps people from becoming wealthy is living reactively rather than intentionally,” according to financial behaviour coach Derek Hagen of Money Health Solutions. “Going through life without knowing what money’s purpose is for you will make it more likely that you will spend money in areas that aren’t important to you.”
Staying in a dead-end job
The saying “a body at rest tends to stay at rest” applies to many things, including jobs. Most people avoid the time and trouble of a job search if they’re already in a decent position, but that’s a big financial mistake.
“While it can be difficult to look for a new job when money is tight, considering ways to improve your career should be an ever-present thought,” said Tom Blake, owner of This Online World, a personal finance blog for young adults.
“If you are working at a company that limits opportunity, you may be missing out on a chance to increase your salary and professional development over time,” he said. “If you feel as if the company you work for will never allow you to progress, it may be worthwhile to start a job search on the side and to look for an alternative option with more financial opportunity.”
Not having an emergency fund
If you want to avoid dumb financial mistakes, follow the old adage, “Save your money for a rainy day.” You’ll never figure out how to become rich if you don’t build an emergency fund and learn how to use it wisely.
“When people don’t have at least a few thousand dollars on hand, they tend to make bad financial decisions when an emergency happens,” said neuroscientist Nicole Gravagna, author of “Venture Capital for Dummies.”
“The emergency fund helps people make better decisions because of psychology, not because they pay their way out of problems.” “Having an emergency fund puts you in a mindset of having options.”
“You may think, ‘I could use the emergency fund to pay this unexpected medical bill right now, or I can call the hospital and negotiate a payment plan so my emergency fund doesn’t get depleted all at once,'” she added. “It’s human nature for broke people to make worse decisions than people who have a little cash on hand, even when that cash on hand isn’t ultimately used to solve the problem.”
Overpaying for necessities
“Paying too much for necessities could be keeping you from building wealth,” said Julie Ramhold, a senior writer for DealNews.
“For instance, things like car, renter, or home insurance are absolutely necessary.” “But if you aren’t shopping for the best rate, then you could be needlessly spending more than you have to,” she added.
To avoid this financial mistake, she advised, “Take the time to do some research and see what will work best for your needs and your budget.” “Doing so could mean the difference between saving nothing every month and saving $100 or more a month.”
Living above your means
If you spend all your money on a lavish lifestyle, you won’t discover how to become rich, even if you’re not racking up debt. Spending every penny you earn is one of the biggest financial mistakes, especially for younger adults, because you don’t get off to a sound financial start in life.
“After young folks finish their formal education and find jobs that they truly enjoy, they should strive to live a lifestyle that’s well below their means,” said Timothy G. Wiedman, a retired associate professor of management and human resources at Doane University.
“If they live well below their means, they can quickly retire their student loans while paying off any credit card bills they accumulated getting started in their new professions.”
Driving an Expensive Car
Your dream car might be fun to drive, but buying it could be a big financial mistake. That is, unless you’ve already learned how to become rich and have tens of thousands of dollars to spare.
“Driving a reliable, gently-used Toyota Camry rather than a new Land Rover Sport with a $699 per month lease payment saves an awful lot of money on transportation costs year after year,” Wiedman said. “And if a young couple needs two cars, they should make the second one a smaller, gently-used Toyota Corolla, Honda Civic, or something similar that has a good record for reliability.”
Splurging on Lavish Vacations
Going on extended trips to Walt Disney World, luxurious cruises, or African safaris can all be big financial mistakes if you’re trying to become rich. One of the best parts of a vacation is the memories that you make, no matter where you are. Wiedman recommended visiting inexpensive destinations.
“Depending on where you live, a very affordable road trip to the Florida Keys, Maine’s Acadia National Park, the Grand Canyon, or Montana’s Glacier National Park can be a stress-reducing break from their hectic work routine,” he said.
“And if you own a tent or can borrow one, camping out a few nights along the way will further reduce expenses.” “The point is, memorable vacations need not break the bank.”
Showering Adults with Holiday Gifts
Have you ever felt the stress of buying the perfect holiday gift for all your family and friends? Lavish gift-giving is not compatible with plans to become rich, especially if the recipients are adults.
Instead of falling prey to this annual financial mistake, Ilene Davis, author of “Wealthy by Choice: Choosing Your Way to a Wealthier Future,” recommended changing the way you celebrate.
“Instead of buying gifts for adult children and friends when they have money to buy what they need themselves, why not just have a potluck party where you get together to have fun?” she said. “The money you don’t spend on unneeded gifts can be invested to build wealth.”
Bailing out adult children
If you’re an older adult, you have less time to figure out how to become rich and to recover from financial mistakes before you hit your retirement years.
For this reason, Davis advised: “Don’t bail out your adult children if they make their own financial mistakes with money that really is needed to finance your own future.”
They have more time to recover and get back on track before they reach their own retirement.
Paying high credit card interest rates
Credit card interest rates aren’t written in stone, and you’re making a big financial mistake if you think they are. You’ll never get the hang of how to get rich if you pay double-digit interest each month.
“Consider transferring a high-interest balance to a credit card with a 0% introductory APR offer to give yourself a period of time to pay off your debt interest-free,” said credit industry analyst Nathan Grant of Credit Card Insider. “Some cards offer an interest-free period of up to a year or more.”
Giving in to lifestyle creep
It’s tempting to increase your spending as your salary increases, but banker Nermeen Ghneim of the Savvy Dollar blog calls this “lifestyle creep” and says it’s a financial mistake.
“Lifestyle creep can happen to anyone if measures are not taken to avoid it.” “When your spending continues to increase with your income, it makes previously unnecessary purchases seem necessary,” she explained.
“Some people spend more to keep up with friends, while others do it for the temporary high they get from an unnecessary shopping spree.” “The net result is that lifestyle creep prevents you from being able to invest money for your future.”
If you know anything about how to get rich, you know that investing is an important way to get there.
Going into debt for school
College is expensive, and student debt can haunt you for years to come. If you don’t qualify for financial aid, you don’t have to make the financial mistake of saddling yourself with years of loan payments. Instead, find an employer that offers tuition assistance.
As of 2019, employers can provide $5,250 of tax-free tuition money. This benefit isn’t limited to high-end positions. Companies like McDonald’s, Walmart, and Starbucks give college money to employees in entry-level positions, although you may be limited to certain schools or degrees. Still, if you’re interested in how to become rich, you can go a long way with schooling that’s funded by someone else.
Keeping up with the Joneses
Trying to keep up with the neighbours is an age-old financial mistake. In the age of social media, when others portray their lives as perfect on Facebook or Instagram, it can spark your desire to live like them. But if it drains your bank account, you won’t become rich.
“There are a lot of people who purchase things they don’t need and can’t afford to impress people around them,” said Michael Outar of Savebly.com, a personal finance website. “It’s a psychological problem that affects your finances drastically.
You don’t need that fancy car or that big house just to impress people or show off. There is nothing wrong with having nice things, but you have to make sure you can really afford them before acquiring them.”
Having a single income stream
We live in a gig economy, and everyone has a talent. So you’re making a financial mistake if you’re not capitalising on your skills to make extra money.
“Not having multiple income flows is a mistake,” said Joe Bailey, a business development consultant with My Trading Skills. “To build wealth sustainably, you need to have income flowing in from different sources. Lacking multiple sources of income is often a handicap to strategically building one’s wealth.”
Sell craft items on Etsy, flip secondhand merchandise on eBay, drive for a ride-sharing company, or walk dogs. Any of these side gigs is a brick on the road to becoming rich.
Not Taking Advantage of All Your Employer’s Benefits
Big employers typically provide benefits like vacation time and health insurance. But you’re making a financial mistake if you don’t take advantage of their extended offerings.
For example, some companies pay for gym memberships or have employee assistance programmes that offer free counselling sessions, referrals to child care or elder care, financial counselling, and legal referrals. If you want to know how to become rich, find out your benefits and take advantage of them so you don’t have to pay for important services you could get for free.
Not refinancing your mortgage
Mortgage paperwork is a pain, but are you letting that dissuade you from some major savings? Not refinancing your mortgage is among the biggest financial mistakes, according to Karl Jacob, CEO of LoanSnap.
“People don’t identify and pursue new options to refinance their home loans,” Jacob said. “Most buyers choose a lender primarily based on the lowest rate for a conventional 30-year fixed mortgage. But what about your other outstanding debt, like credit cards, student loans, or car payments? Instead, look for lenders that offer debt consolidation loans that let you combine other bills with your home loan into a single payment.”
Debt consolidation and a lower payment both fit into a wealth-building plan.
Refusing to reward yourself
It might sound counterintuitive to splurge when you’re trying to become rich, but occasionally rewarding yourself when you meet your financial goals can provide powerful motivation to avoid financial mistakes.
“Whether you are trying to pay off substantial student debt or finally getting around to building your emergency fund of 3 to 6 months of expenses, always saving with no indulgences can be demoralising,” said Jeremy Straub of Coastal Wealth. “Maybe you have a list of five financial goals you want to achieve and feel like it will take forever to accomplish.”
“You can give yourself a special splurge every time you cross an item off your checklist,” he said. “This could be a nice dinner out or great seats to a concert you have wanted to attend. Little splurges along the way will keep you motivated and heading in the right direction.”
Keeping Too Many Subscriptions
It’s so easy to subscribe to apps, streaming services, shopping clubs, and various other services that you probably don’t need. That’s a financial mistake, as is forgetting to cancel them.
“Review your monthly recurring charges and see if there are any services you are not currently using,” Straub advised. “Perhaps you really only watch Netflix but still have a Hulu subscription from that one time there was a documentary you wanted to watch. Or maybe you have a full cable package but only watch HBO, which can be easily added to your Amazon account for a minimal fee. If you aren’t using it, you don’t need it and will not even notice when it is gone.”
Not using financial apps
Your phone makes it easy to spend money on apps, but instead of making that financial mistake, put apps to work for you. When you’re thinking of how to become rich, savings apps belong in that plan.
“With the wave of new fintech startups, there are a variety of apps on the market to make your financial life more manageable,” Straub said. “Some apps round up your purchases to the nearest dollar and seamlessly put those cents into your savings. You don’t feel like you are doing anything, but at the end of the month, you have a nice little chunk saved up.”
“There are also apps that can help pay student debt, which is something many young Americans are struggling with today,” he said. “There are even apps that will analyse your budget and monthly subscriptions, helping you find ways to cut back.”
Thinking It’s Too Early to Start Saving
When you’re in your 20s, retirement seems like an eternity away. One of the most common financial mistakes is not starting to save in those early years and missing out on the compounding effect of interest. If you want to know how to become rich, interest over the long term is at the top of the list.
“Time is your ally when it comes to building wealth. The compounding effect of interest or returns on investments is increasingly impactful over time,” said Spencer Barclay, founder of the Savology financial planning platform. “For example, saving $500 per month starting at age 25 yields approximately the same result as saving $1,000 per month starting 10 years later at age 35.”
Failing to Invest
Investment sounds scary to many people, even though it’s necessary when you’re learning how to become rich. You have to make your money work for you, and not knowing where to start in terms of investing is no excuse to make this financial mistake.
“I hear about so many people who don’t invest — they don’t know how. Many are scared to put their money in the stock market,” said Zina Kumok, personal finance expert at Dollar Sprout. “Not investing will keep you from retiring when you want to. It’s the biggest barrier to true wealth.”
“If you want to build real wealth, you have to learn how to invest your money,” said Kumok. “Even if you end up hiring a financial planner, you should learn what investing means so you understand it for yourself.”
One of the biggest impediments when you’re wondering how to become rich is making excuses when you know the steps you need to take.
“No matter what your income is or what your outgoings are, your attitude towards money will make one of the biggest differences as to whether you will save or not,” said Holly Andrews of KIS Financial. “If you keep making excuses as to why you’re not saving money and why you’re purchasing certain things, you will find it very difficult to get into the mental habit of saving money.”
If you’re facing this financial mistake, she advised seeking professional financial advice and getting help with making a budget and savings plan.
Clinging to Old Stuff
That treadmill you bought five Januarys ago does you no good as a clothes rack, nor do those old golf clubs or the outgrown kids’ clothing stacked in the closet. Finance blogger Lauren Mochizuki said it’s a financial mistake to not turn unwanted items into easy cash.
“People ignore what they aren’t using,” she said. “When was the last time you purged your closet or your garage? Hosting a garage sale or selling these used items can generate lots of extra income.”
Sites like eBay, Craigslist, and Facebook Marketplace make it easy to convert your goods into cash that you can invest as part of your plan for how to become rich.
Stretching out credit card payments
Credit cards are a tempting way to buy big-ticket items if you can’t afford a lump-sum payment. But if you want to know how to become rich, put that card away. Carrying credit card debt is a major financial mistake, according to R.J. Weiss, a certified financial planner and founder of The Ways to Wealth.
“High-interest debt makes it all but impossible to get rich,” he said. “Warren Buffett got ahead in his early years, compounding gains at around 20% year after year. For those who carry high-interest debt, especially credit card debt, wealth is compounding negatively at around 20%. In other words, if you carry high-interest debt, your net worth is declining at the same rate that made Warren Buffett one of the richest men in the world.”
Letting your job skills stagnate
Sought-after skills aren’t static, so if you want to know how to become rich, keep your skill set up-to-date.
“The key skills that companies are willing to pay high salaries for change all the time,” said Logan Allec, CPA and owner of Money Done Right. “That puts the requirement on you to learn these new skills. For example, learning more about software and programming can dramatically increase the salary you can ask for at your job. However, most people don’t continue to learn and push themselves forward in terms of career development.”
That’s a big financial mistake in terms of potential salary. To overcome this, Allec said, “Ask yourself what skills will likely become important to your career over the next few years. Then, go out and learn them.”
Blindly following financial advice
In the internet age, we’re bombarded with a massive amount of information on how to become rich. Don’t make the financial mistake of blindly following that advice.
“Media, commercials, ads, etc. are constantly feeding consumers financial information,” said JeFreda Brown, CEO of Provision Financial Education. “However, this doesn’t mean that information is accurate or true. Marketers use psychological methods to cause people to believe what they are saying, which causes people to believe they need to spend money on items or services that they may not necessarily need.”
If you want a sound financial plan, turn to a professional to guide you away from financial mistakes.
Many people are uncomfortable tooting their own horns, but not doing so in the workplace is a big financial mistake.
“A lot of us, particularly women, enter the workforce ill-equipped for salary negotiations and often give away our skillsets for less than they’re worth,” said Stephanie Bousley, a financial consultant and author. “Forget about median salaries for your city and focus on what you are worth.”
“We create a lot of invisible boundaries to earning more money at our jobs: no one is getting a raise this year, we don’t want to ruffle any feathers, we’re downsizing, there’s a ceiling for people with my title, etc.,” she said. “Try to forget about these excuses and focus on only what you are bringing to the table.”
Drinking too much is bad for a variety of reasons, including its impact on your finances.
“Money spent at a bar is money never seen again, plus some of us make further bad choices after drinking, like internet shopping in a blackout, ordering $400 worth of Chinese food… you get the picture,” Bousley said.
It’s a financial mistake to spend big bucks on liquor when those funds could go into your savings plan.
Not setting goals
You might claim to want to know how to become rich, but if you’re not setting specific financial goals for yourself, you’re making a big financial mistake.
“Lack of clear money and wealth goals, as well as lack of clarity on how to achieve these goals, is a big problem,” Bailey said. “Without a clear wealth goal or a plan with actionable strategies, it is almost impossible to build one’s wealth.”
Not shopping around
One common financial mistake is to buy without shopping around.
“It may seem very tedious to compare different shops and retailers before you purchase anything, but it’s seriously worth doing if you want to start spending less and building up some savings,” said Phoebe Griffits of KIS Finance.
“A lot of money can be saved on purchases that you needed to make anyway if you just take a little more time and effort to make sure you’re getting the best possible prices.”Comparing products can easily be done online, and there are comparison websites [that] do all of the hard work for you.”