Avoid these Common Pitfalls to Personal Finance Success

It’s a pretty safe assumption that those who love math, also enjoy personal finance. (At least I’ve seen this to be the case) This is because personal finance is usually viewed as mathematical, logical, and based on formulas to success… If you ask someone for assistance with personal finance they we probably rattle out a number of different formulas for success, like “do you have a budget?”, “what percentage are you saving for retirement?”, or “how much is in your emergency fund?”.

These logical formulas are extremely important to having a solid financial footing – no doubt about it… but what are the “non-mathematical” steps that have to be taken in order to maintain sound finances? In other words – besides the math, formulas, and strategies – what are the other essentials to a great financial future?

I believe there are many of these essentials that are usually not talked about, but are vital to success. I hope to explore a few of these below…

 

1. Honesty with Oneself

The first step – before even looking at a budget – is to look in the mirror and get honest with yourself about your finances. This is probably the hardest step for individuals when they are attempting to turn their situation around. It’s difficult for anyone to come to terms with their income, spending habits, and changes they need to make when overwhelmed with debt.

If you are like me, you want to avoid this at all costs, because your are scared of the reality that follows… Believe me, there are many people who will never make this change without some catastrophe like bankruptcy, but I encourage you to do it out of your own pure determination!

Just to clarify – by being honest with yourself,  I mean you need to evaluate the ‘income level’ at which you should live. In other words you need to ‘live below your means’ and accept this as reality. (Ouch, that can be hard…) Again, I encourage you, as being honest in this area will open the door to amazing success in the future.

 

2. Open Communication with Loved Ones

Another area that is hard for many of us is to have open communication with our spouse and loved ones about money. Many times the reason number 1 is not dealt with, is because number 2 is not being addressed. These are hard conversations to have which means they are usually avoided, which only causes additional stress and frustration.

To have a solid financial footing, you need to have open communication with your loved ones on your own financial situation, so that you can be successful. For those of us that are married this needs to be addressed with our spouses – obviously this is a vital step for your marriage and really a ‘no brainer’ for your finances.

We also need to have these conversations with our friends and family who will also put pressure on us to spend money. No need to reveal your entire balance sheet, just a simple conversation that you are living on a budget and only have $X to spend, can go a long way in this area.

 

3. Sacrifice to Achieve Success

What makes someone successful? It can be leadership, perseverance, or a brilliant mind – but I’m betting you will also find within all of this, the willingness to sacrifice in order to achieve success.

A great example of this is the physicians among us… For a doctor to be successful they must sacrifice a large part of their free time (i.e. life) in college, medical school, and residency in order to be successful. I’m certain that many of them ‘counted to cost’ to their lives in order to be a successful doctor, and determined it was worth it.

The same is true in personal finance. In order to be successful in this area, you are going to sacrifice something. It may be vacations, a bigger home, or your personal hobby. Living on a budget is key to this, which in itself requires you to say ‘no’ to some purchases and essentially sacrifice by not having them. Although this can be hard, I’m certain you will find it is worth it!

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