5 Ways You're Sabotaging Your Financial Health (Without Even Realizing It)
“Eliminate stress.” We’ve heard it. We know it’s the key to our mental and physical health. But it’s not that simple. So many things cause us stress — our job, our families, and our relationships. And often, the underlying issue is our money.
Every day, we wake up and face endless financial options. Should we cut back on lattes or indulge? Should we invest or pay off debt? What should our clothing “budget” be? Ultimately, these tasks become overwhelming and we do the same thing we always do: nothing. The result is guilt and stress on our mental and physical health — and especially on our relationships.
It doesn’t have to be that way. In fact, you may be sabotaging your financial health without even knowing it.
Here are the most common money mistakes … and how you can fix them:
1. You're focusing on frugality.
Stop drinking lattes! Don't have an appetizer! This constantly trying to cut back on little indulgences takes tremendous willpower day after day. It’s exhausting and basically useless — not only do you feel horrible about yourself every morning, it doesn’t really add up to that much in the end.
The truth is, if you focus on Big Wins like negotiating your salary or earning money on the side, you can spend money guilt-free on the things you love.
A Rich Life isn’t about pinching every penny. If you cut back on things you hate paying for (like negotiating your cell phone bill), you can spend lavishly on things you love. For example, I have students who regularly buy $200 jeans or a round of drinks for their friends without a second thought.
2. You're not planning for the “unexpected.”
Doesn’t it seem like every time you get “back on track,” something unexpected pops up? The car breaks down. You get a speeding ticket. You need to replace the dishwasher. Ugh. How can we get ahead with all these “unpredictable” setbacks?
You can! Here’s how: I predicted, based on my history, that I would get a traffic ticket approximately every two years. I didn’t know when … but I knew it would happen. So I set up a special account to plan for it. I even call it my “Stupid Mistakes” account.
You can set up accounts for expenses like traffic tickets, car maintenance, or household repair. Most banks allow you to set up subsavings accounts like this so you can be ready for these “unexpected” expenses.
3. You're stressing about the news.
If you’ve watched cable television in the last 20 years, you may think that every fluctuation in the Euro, new government policy, or change in wind direction spells doom for the “middle class.”
But unlike pundits would have you believe, macroeconomics has very little impact on your personal finances. You can stop stressing about economic policy or drops in European stocks because if you just do the right, boring things day after day, none of those stressful news headlines really matter.
4. You're worrying about minutiae.
People email me all the time: “Should I choose Bank X over Bank Y because Bank X has a 0.2364% higher interest rate?”
There are a million little things you could worry about that, in the long run, make almost no difference to your bottom line. Rate chasing is one of them. For example, a 1% difference on a balance of $10,000 is only $8.33 extra a month.
Again, focus on the Big Wins. Find a bank you trust that lets you automate your accounts, create subsavings accounts, and has no fees or minimum balances.
5. You're trying to budget every penny.
Pick up almost any personal finance book and the first chapter will recommend you “track all of your expenses for one month.” Do you get that feeling in the pit of your stomach just thinking about it? We all do. “Budgeting” makes us feel guilty, so we just don’t do it.
Here’s a dirty secret: most finance “experts” don’t budget either. Why not? It’s a lot of work, we feel terrible after, and it’s nearly impossible to sustain.
Instead, you can set up simple systems to take care of your finances automatically.
When you automate your money, your bills are paid, your savings accounts and investments grow, you know exactly how much money you have to spend (guilt-free) and the best part is, you don’t have to constantly worry about it. In fact, I spend less than an hour per month on my personal finances.
I explain step-by-step how to automate your finances in my best-selling book I Will Teach You To Be Rich. You can get the first chapter for free here plus a free 12-minute video guide on how to get started.