In my ongoing Rich Habits research, I have the fortunate opportunity to peer into the lives of the rich and poor.
Thanks to my research, I’ve learned that there are fifteen factors that make it hard for people to hold onto their money or build wealth:
Pretender Syndrome
Ego-driven purchases are intended to create the perception to others that you are doing better financially than you actually are.
Procrastination
Believing you have plenty of time left to get serious about saving money.
Smarter Than Everyone Else
This was one of the reasons why many people do not hire experts, seek feedback from experts, or why they took Uneducated Risks (taking risks without doing your homework).
Emotional Spending
Spending decisions that you make when you are in an emotional state, are always going to be bad spending decisions.
Bias
Making money decisions that are not fact-based but, instead, found in certain beliefs that are incompatible with prudent money management.
Ignorance
Not knowing what you don’t know and, nonetheless, making important long-term financial decisions that leave you with too much debt and too little discretionary income.
Overthinking
Simple solutions are usually the correct solutions.
Seeking more complicated solutions leads to procrastination and delay.
Fear
Making money decisions out of fear.
An example would be liquidating investments during a downturn in the stock market.
Stress
Studies have shown that stress reduces your IQ by 13%.
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When you are under stress, you should never make any money decisions.
Wait until you sleep before you make any money decisions because sleep resets your emotions back to their baseline.
Impairment Spending
Spending money or making spending decisions while impaired by drugs or alcohol.
Desperate Decisions
These are decisions that you make from a position of weakness.
They are typically the result of prior bad decisions and are almost always forced upon you by some third party, such as a lender, government agency, credit card company, employer, spouse, family, or friends.
Impulse Spending
Making spur-of-the-moment purchases.
This could be emotion-based or due to Decision Fatigue.
Peer Pressure Spending
This is where you try to mirror the lifestyles of neighbors, friends, or family.
Rescue Spending
When those inside your inner circle struggle financially, your inner circle will almost always be sure of your spouse, family, friends, work colleagues, etc.
Impatience
Making poor money decisions, such as liquidating investments during a downturn in the market can be fear-based or driven by a lack of patience.
Making any major purchase without wanting to spend time doing your homework, is another example.
As you can see, there are many reasons why people make mistakes with their money.
Being aware of these common pitfalls can help prevent you from falling into any of these Spending Traps.
