Three Money Mistakes People make That Keep Them in Poverty
Grievous Mistakes that keep hardworking people living from paycheck to paycheck
There are three grievous mistakes that perpetually keep hardworking well-meaning people in poverty. These mistakes are unforgiving to anyone unschooled in money matters.
The good thing about these money mistakes is that they are easily fixed,
Before talking about these mistakes, let’s first talk about numbers and here is a question, — do numbers scare you? like are you afraid of looking at numbers?
If you are employed or are paid on contract, how do you handle your paycheck? Do you look diligently at your transactions when you log into your bank account?
It’s exciting when you log into your bank and see a deposit of your paycheck or a deposit from a client? It gets your heart racing, thinking of all the things you could do with that money. thinking of the bills you can finally pay, and the groceries that need replenishing.
But here is the thing, in that moment of euphoric excitement, do you care to look at where you are spending your money, do you add up what came in and what went out to see how you spent your money?
Mistake number one — Not looking at your Expenses
Not keeping track of where your money goes, is a grievous mistake that has kept most people living from paycheck to paycheck, hoping to see their life fall into place at the end of the year.
Think about that mindset, they look at money but don’t add it up to know how much is coming in and how much is going out!
They won’t add up to see whether they received the correct amount, say they were supposed to receive a deposit of $50,000 during the year, but they only received $30,000. They don’t up their expenses to see where the money went, and how much they saved in the year.
They see the money coming in, but because they never look at where it’s going, it disappears into thin air.
That’s what happens, to most people, they never look. The only thing they do and that’s because they’re forced to do it at the end of every financial year is to file taxes.
They have no idea what happened to the difference between $50,000 and $30,000. FICA came in came in and took their share, the fed wasn’t far behind, they too took their share, the state also took their slice of the paycheck, everybody took what belonged to them.
A good chunk of the money never got home, in actuality, they made more money than they received, that information only comes out at the time of filling the tax form.
The tax return form however, does not reconcile the income and expenses,
It does not break down how much money was paid to FICA, and if it was the correct amount,
A lot of times people get tax refunds because they paid more than they should and that’s because you weren’t looking, they weren’t adding up the numbers.
So they end up paying money that they could be doing something with. Imagine if you overpaid your taxes with $10,000, and if you had this 10 grand to flip over and make a profit. You could probably double the money at the end of the year.
Mistake number two — Not setting Financial Goals
Mistake number two is huge. I work with a lot of business owners. I always ask business owners this one question, ‘what are your financial goals?’ Over the years I have come to realize that many business owners don’t set financial goals.
Not setting financial goals is disastrous for any business or individual
I was on an accountability call with a couple of fellow accountants. just sharing what’s going on in business. We shared our financial goals for the coming month just to stay accountable.
When you have an accountability partner, you are forced to do stuff. A lot of times being accountable to yourself is not good enough, it’s easy to give yourself a pass when the going gets tough, you need someone who will check on you and put you to task.
I have given myself many passes in the past because I had no accountability partner, but to the group, when I commit to a goal Somebody is bound to ask “Hey Jay, what did you do last week?” I have to respond and say something like, “I set a goal to do this or the other, but I got so busy I didn’t do it.”
But imagine if I keep coming back to the group with the same excuse every time, the message I will be sending out is that I’m not willing to follow my goal through.
You need to set realistic financial goals, when you say you want to make a million dollars in a year and that’s a noble goal, then you better have some strategic plans of how to make that million.
You have to obey the law of return to scale, let go of some millions, put out some money to receive that one million.
So when you set a financial goal that is within your reach, ask yourself “Who do I need to give money to so as to make more money?” — Who do you need to hire, to take your business to the next level?
Mistake number Three — Not understanding Accounting
Here’s the thing, you could have a clear goal, but if you don’t do anything about it, nothing is not happening.
The biggest financial mistake most people make is to fail to understand accounting. You don’t have to be an accountant to understand accounting.
Most people don’t understand profit and loss statement, they don’t understand the balance sheet, cash statement, or business numbers.
The truth is that if you don’t know how to read these statements, you won’t understand what’s going on in your business or in your financial life.
Because you can see money came, but you won’t understand what’s happening. If you were to read profit and loss statement, you will understand what’s happening with your finances.
For example, you need to understand the difference between cash and accrual. Cash is literally what it says is cash, whatever came in as your sales and whatever went out as your expenses that’s cash in and cash out.
But the accrual method is a little different. It captures your business financial activities,
For example, you sent out an invoice, or you just signed a contract, reading an accrual statement, that contract you signed or the invoice you sent out may not be money in, but its interpreted as income.
Not everybody is an entrepreneur. What if you are an employee or contract worker saying I don’t have a profit and loss statement?
Now as an employee you have only one client, your employer. So you too have a profit and loss statement, a balance sheet, and cash flow.
Look at your employment as a business, start thinking of how to increase your income, probably get more clients, because if you are fired by your employer your whole business is shut down, and you won’t know how to pay you fixed expenses.
When you have several clients your business won’t get shut down.
Wrapping Up;
So here’s the goal. Don’t make these mistakes. Look at your numbers, add those numbers up, and have clear financial goals, then move into action.
Lastly understand the basics of accounting. Everybody doing well in business understands accounting and can successfully pivot their businesses.
