5 Mistakes That Prevent You From Achieving Financial Independence
“Why should I strive for financial independence? My life is pretty good as it is,” you may ask yourself. You love your business and you love doing what you do. If that’s the case, I’m happy for you!
Small Business owners typically focus on the finances of their business – and at least partly neglect their private savings. Let’s be realistic. Business has its ups and downs. A disruptive technology can put the end to your business tomorrow and having a financial safety net is essential. Plus, you’ll make much better business decisions when you’re not under pressure to chase just any deal because you have bills to pay.
Are you making any of the five mistakes below that keep you from achieving financial independence and becoming a better Small Business owner?
Mistake #1: Living Beyond Your Means
Most people live beyond their means. Right after graduation, we want to enjoy the sweet life of buying the things that were out of reach during our studies – maybe our first five star hotel holiday – while we still have student loans to pay off. We win one great client and we buy a fancy car.
Some years later, when our nesting instinct kicks in, we often buy an apartment that’s large enough for family expansion. Might as well, so we don’t have to move in a couple of years, right?
Wrong. We’re getting into a habit of living beyond our means. Soon, this higher standard becomes the norm, and we have difficulties stepping back. And, typically, we stretch ourselves not only with our mortgage or rent but we also do the same with our car, our vacation, our clothing… And we’re chaining ourselves to our business because our bills are a size larger than what we can afford.
Mistake #2: Putting All Your Eggs in One Basket
Your financial advisor will tell you to diversify. Listen to him. Nobody expected the oil price to fall from a peak of USD145 in 2008 to below USD30 in the past year. Nobody expected Enron to go belly-up. However, those who had all their eggs in either of these baskets have suffered.
Mistake #3: Considering Bank Accounts a Good Place for Your Money
Human beings are risk averse. We are programmed to maintain the status quo – and losing money is a loss of status quo. Fair enough. I don’t want to lose my money, either. However, too many people react by keeping their money in a ‘safe’ bank account, where they are in fact losing money every day due to inflation. Did you know that if you saved your first director paycheck in a bank account, it is easily worth much less than half by the time you reach retirement? Ouch.
Mistake #4: Failing to Learn From Successful People
There are plenty of people out there who are doing very well growing their wealth. I don’t know about you, but when I decide I want to take on something new, I look to the people who are already successful at it in order to learn from them. So, in finance, look at what the rich are doing. And their money is multiplying fast.
Mistake #5: Failing to Start Early – or Even Now
There’s always an excuse for not starting your financial freedom journey. The earlier you seriously start building your wealth, the sooner you will have the true freedom that comes with financial independence. Did you know that if you saved one-third of your income at around 6%, you would be able to live off the returns after about 20 years? Don’t you think it’s time to stop making excuses and take action to begin the journey towards financial independence?
In the words of Laozi: “If you do not change direction, you’ll end up where you’re heading.”
In the next five articles in this series on Financial Independence, I’ll share five easy and important steps you can take to get yourself heading in the right direction. To stay with Laozi: “The journey of a thousand miles begins with one step.” Take your next step by reading the next article in this series in a couple weeks time. Subscribe to the Smallville newsletter to stay updated.
“The opinions expressed by Smallville Contributors are their own, not those of www.smallville.com.au"
SHARE THIS ARTICLE WITH LIKE MINDED SMALL BUSINESS PEOPLE