All of us make financial mistakes, and research in the new fields of
evolutionary economics and behavioral economics are starting to explain why. It
will be good to have this knowledge someday. But in the meantime, here are ten
of the more common money mistakes you may be making, so you can start correcting
them now.
1. Making A Competition Of Financial
Decisions
Trying to "beat" anyone else in a financial transaction is
a bad habit, unless you are playing poker or negotiating a business or
investment deal. The first people to buy new technology get to show it off, but
they also get the worst version at the highest price. If you "win" at an auction
it means you paid more than anyone else was willing to pay. Looked at that way
it doesn't seem so smart.
Evolutionary economics explains why we feel
this need to "win." It developed as a way to gain a better position in the
tribe, which increased one's survival odds thousands of years ago. This tendency
of ours is of very little value in a modern economy, so ignoring such urges is
wiser.
2. Believing You Are Owed Something
Nobody owes you a thing unless
you have a contract or a promise. Dwelling on what is "owed" to you is a
financial mistake because it gets in the way of doing what is necessary. And why
does anyone owe you a thing? For example, health insurance came to be expected
of large employers based on nothing more than the fact that many provided it.
Had enough companies provided cars to employees, we would think we are "owed" a
car by our employer.
Forget what is "owed" to you. Just work honestly to
get what you can. Ask for a raise, but if you're not paid enough, find another
job. Collect that unemployment benefit if it's available, but don't think others
have an obligation to provide your income for you. Once you stop looking for
your "due" you can start looking at how to make money and create what you need
for yourself. Usually this means seeing what others want, and finding a way to
provide it for a paycheck or a profit.
3. Believing Value Is About Prices
Suppose a television normally
sells for $900 and is on sale for $400. Is that a good value? Most people may
think so, but the value of personal items is measured by what the individual
user needs. If you're as happy with a $200 television, then the other is
over-priced from your perspective. Such personal purchases are worth only what
it makes sense for you to pay. If a $20,000 car is worth just $3,000 to you,
then that's that (and you don't buy it).
4. Believing Value Is All
About You
I once saw a man lose $30,000 by pricing his home too high
and leaving it empty for years - one of the more common financial mistakes. With
investments, value has nothing to do with what you think a thing is worth. The
only important measure is what the market will pay for it.
I once saw a man lose $30,000 by pricing his home too high and leaving it empty
for years - one of the more common financial mistakes. With investments, value
has nothing to do with what you think a thing is worth. The only important
measure is what the market will pay for it.
People often confuse personal
consumption items with investments, thinking, for example, that a car is an
investment. A $22,000 kitchen remodeling project isn't an investment either, if
future buyers will pay only $10,000 more for the home afterwards. The owner
might like to think it added $30,000 in value, but his ideas are irrelevant. He
better enjoy that new stove and cupboards, because they were not investments,
but a $12,000 personal purchase (that's his net loss).
5. Believing
High Profits Are Unfair
In any honest sale, the price is fair, or it
wouldn't have been paid. Consider if your own house had a market value of
$400,000 and you wanted to sell it. Would you lower the price to make it more
"fair?" Not likely, so why expect any business to charge less than what the
market dictates?
How much profit is made on something is entirely
irrelevant to what its value is. Your choice is to buy it or not. It's a
financial mistake to waste time complaining about a profit you would gladly
accept if you were on the other side of the transaction. The truth is that you
wouldn't buy it if it wasn't a fair price, and nobody (in a free country) is
forcing you to. Spend your energy looking for a better alternative or finding
ways to make more money instead.
About the author:
Copyright Steve Gillman. You'll find more
Money Mistakes, and the free "Unusual Ways (To Make And Save
Money) Newsletter," as well as free e-courses and ebooks, at:
http://www.UnusualWaysToMakeMoney.com
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