ACCOUNTANT EXPLAINS: Money Habits Keeping You Poor

if you've ever wondered what's holding you back from achieving your financial goals you might be doing one of these 10 money habits that keep you poor after a career as the Chief Financial Officer of software companies with an MBA degree in finance and a CFA designation I've learned a lot about how to improve my finances and avoid these big Mistakes One not caring about money not really knowing how much you earn and how much you spend or even thinking that money is bad basically these are a bunch of similar attit udes with the result being that you don't pay attention to your money money isn't bad or good it's just a tool we use it to pay for the things that we need in life food somewhere to live Transportation health care and so on because we need money to support ourselves it's in our best interest to figure out how much we'll need not only now but in the future too if you hope to retire you'll need to have some savings if you don't want to be poor you need to earn more money than you spend most people do know their income of course but they don't really know how much they're spending and what they're spending it on they just know at the end of the month the money's gone so keep track of everything you spend your money on for a while you might be a little surprised it's easy to not notice all the things that you buy every day that really add up over time then put together a comparison of your monthly income and expenses with this knowledge you can start to do the things that will get your spending under control this is the first step to not being poor two not having financial goals having goals can be wonderfully motivating goals give us something to work towards they tell us what we need to do and help us stick to a plan without goals on the other hand we probably won't try as hard since we're not motivated to accomplish something it's just human nature when it comes to money we know we don't want to be poor that means we need to set goals for what we do want we need goals for how much we want to earn how much we can spend and how much to save if for example you decide you want to earn $100,000 per year you then can start thinking about what kind of jobs will pay you that much which will then get you thinking about what education or training you will need to get those jobs which can then get you thinking about how to go get the education or training the goal motivates you to solve the problem of getting you from where you are to where you want to be if you combine goals with action to accomplish those goals you've got a real formula for Success so think about it how much do you want to earn how how much do you want to save what will you do to accomplish this number three paying yourself last thinking you will save when you have extra money this is a classic mistake the problem is that the spending will almost always use up whatever money you have and then nothing gets saved here's what you do instead however much you earn save at least 10% when your pay comes in set it up so that 10% goes immediately and automatically into your investment account this is a powerful psychological trick that we can play on ourselves by always saving at least that 10% each month we learn to live on the remaining 90% we find all sorts of ways for that 90% to be enough for our needs living on that amount of money just becomes your Norm you'll spend a little bit less here a little bit less there you may not even notice but it all adds up to you saving 10% of your earnings and over time that is really powerful speaking of powerful if you're enjoying this video please hit that like button ites takes a lot of work to make these videos and your click of the button has a powerful effect on helping my little Channel get noticed by YouTube thank you very much number four buying expensive things or having expensive Hobbies or hanging out with friends who like to spend and encourage us to try to keep up with them it's hard to earn money but it is so easy to spend it we're surrounded by advertising TV shows movies and social media that make it really tempting to buy nice clothes cars vacations and it's fun to eat out at great restaurants too but all of these things are expensive and lose value really quickly the minute you get that thing the money's gone and before long the pleasure of the purchase goes away too then you're back to working hard to just try and earn that money back this will definitely keep you poor but by being aware of this trap you can train yourself not to do it number five keeping bad debt the worst kind of debt is credit cards and store cards it makes sense to use a credit card to get the reward points but only if you can pay off the balance in full each month if you don't they charge interest on the loan and it is a loan at outrageously High interest rates if you can't afford to pay off the balance in full then don't buy that thing it's just not worth it because the cost of the interest on the loan will be more than the value of the points that you receive and they will charge that high interest rate on the loan for month after month until you finally pay it off another kind of bad debt is a loan to buy anything that loses value like a car loan used to buy a car or in store financing to buy a TV or clothes or Furniture sometimes you can get a very low rate maybe 0% or low single digits on the loan but usually the rate is quite a bit higher think about what's happening here you're borrowing money and paying interest on it which effectively increases the total cost of what you're buying and that thing that you bought immediately starts losing value until eventually it's worth nothing my advice if at all possible is to either not buy the thing maybe you don't need it or save up and borrow as little as possible to make the purchase now these are examples of bad debt just for contrast an example of good debt or at least potentially good debt is debt used to buy something that will increase in value or make more money than the loan costs like maybe a loan to buy a rental property or a piece of manufacturing equipment for a business bad debt keeps you poor while good debt can help you get rich avoid the bad debt number six not thinking about how to increase your income yes it's important to manage your spending to give yourself a certain amount to spend each month and save 10% of your income but there's a limit to how little you can spend at some point it gets hard to spend less you need food you need somewhere to live on the other hand though you have an almost unlimited ability to increase your income a large number of people earn over 100,000 per year over 200,000 per year and many earn a lot more than that so yes manage your spending but then turn most of your attention to Growing your income you can earn more by learning the skills needed to get into a higher paying job and by picking up a side job or starting a small business on the side remind yourself all those people who make a lot of money not one of them started out earning that much they all started at the bottom and had to work their way up into those jobs and if they can do it maybe you can too in fact I bet that simply by trying you will move yourself into a position where you're earning more than you are now number seven waiting too long to invest now this is a big one it's easy to forget about investing or just put it off most people don't feel like they have much money to begin with so who wants to have even less by saving some of it for the future but this can be a huge mistake before you know it you'll be in your 40s then your 50s maybe older and if you haven't been saving you'll be way behind and it's a lot harder although not impossible to catch up and save enough for retirement but if the fear of falling far behind isn't enough to motivate you consider this instead of thinking of investing for the future as a chore something that will just make your life harder and less fun make it a game think of it as actually being the secret to your achieving more money than you imagin possible think of investing early and a lot is the path to a life of freedom freedom to live where you want and do what you want because you'll be able to afford it here's why and it's actually pretty simple it's because of the compounding of Interest now if you haven't heard of this all it means is that a small amount of money if left invested for a long time can become a huge amount of money for example if you invested $110,000 and let it grow for 5 years assuming 8% per year you would have $144,700 not bad but not that impressive the missing magic ingredient is time if instead you let it grow for 20 years you would have $47,000 and if you let it grow for 30 years it would be $101,000 so imagine if you saved $10,000 when you were 30 years old you would have 101,000 when you turned 60 but what if you didn't do this until you were 55 years old well you'd have to save a lot more you would need to save $69,000 to get to the same 101,000 when you were 6 years old the point is the earlier you start the more you will will have and the later you start the more you have to save to get to the same goal but there's one more thing imagine getting really excited about this and figuring out a way to save $10,000 every year for 10 years and then never invest it again just leaving what you had invested for an additional 20 years if you started this when you were 30 saving $10,000 a year for 10 years and then not another Penny you would have $730,000 when you were 60 and it can grow into a lot more than that too if you start earlier or save more most people don't understand the incredible power of this and really I can't emphasize it enough save early Save A Lot and let time and compounding work their magic number eight not saving enough to get the maximum employer match contribution to your company retirement fund if you work for a company that has a retirement plan where the employer matches a portion of your savings into their retirement plan you should invest at least enough to get the maximum employer contribution ution this is literally free money that your company is giving you and all you have to do to get that money is save for your retirement and their fund they can easily give you thousands of dollars a year take the free money nine being afraid to invest to take reasonable risks some people think that investing is the same as saving money in their bank account they know their money is safe in the bank and they can earn interest on it by buying CDs which are certificates of deposit or investing in money Market funds yes the money will be safe but the problem is that the interest earned may not even be enough to keep up with inflation and if it can't beat inflation then your money might seem like it's growing but compared to inflation it's actually losing value the whole point of investing is for your money to grow in value and become worth more compared to inflation so what should you do instead the traditional way to invest is to open an account at a brokerage firm and buy a mix of equity index funds and bond index funds this might sound intimidating but it's really simple and The Brokerage can show you how over longer periods of time this form of investment has yielded returns of between 8 to 10% per year on average If instead you just keep your money in the bank the chances are that you'll earn a lot less and have far less money at the end of the investment period in other words playing it super safe with your savings can cost you a ton of money and might actually keep you poor number 10 not doing what you can to reduce your taxes for many people taxes are their single largest expense but they don't even know it taxes are deducted from your paycheck you pay taxes when you buy and sell things if you buy clothes a TV a car you pay sales tax if you sell something that you own for more than you bought it for you might have to pay capital gains tax on it you pay taxes for owning things if you own a home you pay property tax each year and if you own a vehicle in many states you pay personal property tax on it each year and you pay income tax or capital gains tax on your Investments this can all add up to a large amount of money work with a tax CPA to learn how to reduce your taxes if you own a small business how the business is legally set up will change the taxes you pay and some setups can save you a lot of money again talk to a tax adviser there may be things you can do to legally reduce the amount you have to pay in taxes which will put more money in your pocket the rich are very good at legally minimizing their taxes and you should do the same there is no ethical reason why you should pay more in taxes than the law requires so don't let taxes keep you poor so there you go 10 money habits keeping you poor and more importantly what you can do to change it

Channel: The William Lee Show

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Keywords: bad money habits, money habits to break, money habits, personal finance tips, personal finance advice, poor vs rich habits, money tips, habits that keep you poor, money habits for 2023, dont do this with your money, dont do this with money, money habits of millionaires, budgeting tips, bad money habits to stop, financial independence, financial independence retire early, thewilliamleeshow, williamlee, @thebestwill, accountant explains money habits keeping you poor

Id: GGWCWR5mh1E

Length: 12min 49sec (769 seconds)

Published: Wed Nov 01 2023