Today I'm starting a new five part post on 5 things that can really set you back in your goal to financial freedom. Although many things can go wrong in life, these are some of the most damaging to people's personal finances. The first one is posted below. Check back every few days for the next four.
#1 No Insurance:
You’re really taking a risk if you’re not insured. I’m a big proponent of insurance as an investment in wealth protection. This includes homeowners, auto, life and health. We all admit that things happen in life that aren’t pleasant. The problem is that many people just think that bad things won’t happen to them, especially young people. When something goes wrong though, it can be devastating. Major medical bills are a leading cause of bankruptcy. I knew investors who were rehabbing houses that burnt to the ground during the rehab process. Bad things happen every day and one thing is guaranteed, some people won’t be covered because they opted not to spend a few hundred dollars per month to protect themselves. One of the saddest things I hear happen is when a young married spouse with young children dies tragically from a sudden health issue, auto accident or similar event. Many times they haven’t bought a life insurance policy and their family is left to pick up the pieces and struggle to get by. Don’t let this story be your legacy, spend some money on insurance; you’ll be glad you did. I can’t tell you how many times it’s given me financial protection when things go wrong.
#2 Failure to Plan
People have different personalities and tolerance for risk. Because of this people will naturally have different goals. The one thing that is not acceptable is to not have a plan. If you don't know what areas you will invest your money in, don't set aside time to educate yourself constantly on investing or don't have a timeline for hitting your goal, you're setting up a plan to fail. One of the most common mistakes younger people make is to procrastinate on saving or investing with the mentality that "I've got plenty of time, I'll start next year" but time flies when you're having fun and before you know it you're 55 with no money and only one option: the work until you die plan.
#3 Getting a Divorce
I have an investment opportunity for you. You give me half of your money, your house and pay me $3,000 per month until my last child turns 18 years old. In return, I’ll give you no return on your money. Does this sound like the opportunity of a lifetime or what? I’m not arguing for or against divorce, I’m merely trying to educate you on the financial fallout that will occur. People that go through this multiple times face this scenario each time. Although they might gain emotional or mental benefits, it does sometimes take many years to recover financially.
So many people never succeed because they don’t take the plunge. They’re afraid that they’ll lose money, but what’s the alternative, to be an employee and barely get by for the rest of your life? Anyone who ever made a lot of money has conquered fear. Some very successful people have lost everything multiple times and even declared bankruptcy only to come back stronger than ever.
#5 Winning the Lottery
75% of all multi-million dollar prize lottery winners declare bankruptcy within 5 years. All of a sudden they have millions of dollars but no plan, no financial education and a bunch of “friends” looking for gifts. The scenario typically plays out like this. The winner buys gifts for friends and family members, a nice house for themselves, quits their job and lives off the rest of the money for the coming years. The problem is that they’re usually living a new more expensive lifestyle and the only cash that’s moving anywhere is flowing out. There’s no more income coming in! Eventually the money well dries up and they’re forced to look for work again after being out of the work force for years. The property tax and mortgage expenses that are leftover are massive compared to their previous income level. Even if they do find work, the financial strangle hold is too strong to break. Most declare bankruptcy, fight depression and can’t forget the wealthy lifestyle they used to lead. If you win the lottery, please put the money in savings until you learn to manage money. Invest it in positive cash flow investments so you have enough income coming in to pay your expenses for the rest of your life.