CPA Explains: Money Habits That Keep You Poor

in this video I discussed 10 money habits keeping you poor coming up next on holy Schmidt [Music] when I went to the Kellogg business school I had a professor that told us how to become a billionaire he said in order to become a billionaire you have to take a great idea someone else's capital and put them together and take a lot of risk if it pays off you win big if it doesn't pay off everybody loses their money [Music] when asked about how to become a millionaire he said well that's completely different in order to become a millionaire you just need to follow a half dozen or a dozen rules and as long as you do those right and don't do the wrong things it's pretty easy to get from where you are today to a place of abundance at a point in the future this video is going to discuss 10 common mistakes that people make that are easy to correct that keep them poor alright let's go Point number one is that when they get paid they get the spendies let me know if this sounds like somebody you know maybe even someone you know personally when I was a child I had an allowance it was one dollar per week and when I got my allowance every Friday I'd run to the corner store and I would spend it on effectively junk everything from Candy to slinkies was available at that corner store and over the course of about a year I acquired one of everything my mother who's always been quite Frugal wanted to teach me about money so she diagnosed my problem she gave it a medical condition she said that I had the spendies I didn't know what I wanted to buy but I knew I wanted to buy something and that dollar transformed itself every Friday into things like Laffy Taffy or sweatband wristbands I was lucky my mom gently eased me out of the spendies and into a more pragmatic use of the funds today people engage in the same behavior they get their paycheck and they go out and they spend it they don't know what they want when they leave to go shopping but they definitely come home with something anything Point number two is that they carry credit card debt Rich Dad Poor dad's author Robert Kiyosaki used to give this type of debt a name in fact it's in his book he calls it bad debt of course if there's bad debt there must be good debt and his definition of good debt is any debt that generates cash flow his book talks mainly about real estate and small business ownership but he's talking effectively about any asset that generates positive income from the debt that you take out to buy that income if you take out debt to buy clothing or trip anything that goes effectively to zero in value or pretty close to it right away including credit card debt that is bad debt and certainly carrying credit card debt is one one of the easiest ways to stay poor because you're paying someone else 18 to 24 percent in many cases think about this for a moment if you could invest at 18 to 24 safely would you do it well of course when you pay off your credit card debt that is an 18 to 24 investment because it is absolutely certain that you will avoid paying 18 to 24 percent if you have no debt paying off your credit card is quite possibly the best investment of your life paying someone else interest on credit card debt may be the best investment of their life Point number three is having no safety buffer often called an emergency fund when you come to the end of your month and you still have a few days left before your paycheck people start to engage in quite unusual behavior quite risky Behavior we talked about credit card debt well that's often where it happens if you're good with your money you're not postponing paying your bills in fact when your bills arrive you generally pay them right away if this is you my guess is that at some point in the past you made some minor sacrifice in order to get caught up and once you got caught up that allowed you to feel very comfortable going into payday but what happens if something goes wrong a burst pipe a bad carburetor a dog that needs surgery something that is unexpected if you don't have an emergency fund then when that happens you'll have to go into debt or worse yet you won't know how to pay for it the next point is not knowing where you spend your money most people operate in what I call Haze mode that means that you go through your month and you spend on the things you think are a necessity only to look back and realize that some of those points some of the things that you spent money on actually you didn't need at all these little exceptions turn into hundreds maybe even thousands of dollars of spending that you didn't plan on at the beginning of the month this happens because you're tracking it all in your head but truly tracking your expenses using a systematic approach is a lot easier than trying to track it in your head so take some time develop a basic system to track your expenses and that will help you get out of haze mode and into actively managing your fine answers the next point is that they don't want more from their careers at least that's what they say predictable career growth comes from one of two variables one is an opportunity presents itself and two you are ready for that opportunity but when people aren't prepared to move on an opportunity that has a tendency to keep them in their job for a very very long time the same job in any given company there will be people that move very slow and very fast up the ladder you'll notice that those that move fast are prepared for the next job that is presented to them while the person that moves slow even if they are equally as capable are not as prepared for the next job of course it's not always the case that you move up particularly in family-owned businesses but if you set out with the expectation that you're going to grow in your career then your compass should take you in the right direction the next point is not knowing how to minimize taxes don't get me wrong I'm not talking about tax evasion I'm talking about setting yourself up so that you pay the least amount of taxes responsibly of course former judge of the southern district of New York learned how and had his saying he said that anyone shall arrange his Affairs so that their taxes are as low as possible he said there isn't even a patriotic duty to increase one's taxes now hear me here I'm not talking about doing something that is Criminal I'm talking about understanding how the tax law works and applying that to your situation so that you minimize the taxes that you owe a good tax accountant can help you with this the next point is being afraid to take normal risks with your money if you're watching this video there's a very good chance that you own a 401k or an IRA or a brokerage account or all three during your lifetime you will have been given many different opportunities on what to do with the funds in these vehicles some of them are effectively risk-free or very low risk others are quite risky oftentimes when one doesn't know what to do they choose the least risky option something like a money market fund once they implement this they never revisit that choice to see if it's right for them long term several years go by and suddenly the option to capitalize on Market movements has decreased and the plan participant is wondering why their portfolio isn't growing as quickly as their colleague who sits two doors down at the office now don't get me wrong I'm not talking about taking risks that you feel uncomfortable with but what I am talking about is taking measured risks because avoiding risk altogether has long-term consequences think about inflation for example if this sounds like you I would recommend that you talk to a financial advisor I'll put a link in the description to a video I filmed on which questions to ask a potential financial advisor and that'll help you get started the next point is waiting too long to invest one of the first things that I did when my children started earning an income was I help them invest in an IRA the reason is that there's a direct correlation between the time your Investments are in the IRA and the size of the IRA when it's time to withdraw if for example you're age 20 and you put ten thousand dollars into an IRA earning eight percent eight percent is about the market return for the S P 500 over the last 50 years or so that ten thousand dollars turns into three hundred nineteen thousand dollars when you're 65. If instead of investing at age 20 you invested at age 40 that ten thousand dollars would turn into sixty eight thousand four hundred fifty four dollars at age sixty five same investment same rate of return 4.7 times more the next point that keeps people poor is a general belief that money is bad now let's talk about the topic that some people struggle with and that's the discussion of money if this is you and you feel guilty or you feel angry when it comes to money this is going to put you in the wrong mindset to develop abundance later in your life people confuse money with those that have money and what those people do with their money but money is neither good nor bad money doesn't care what to choose for it can be used for scientific research or it can be be used to fund a weekend trip in Las Vegas it can be used to fund school books for children in Africa or it can be used to fund conflict diamonds coming from Africa in short money is not the problem it's 100 percent how the money is used when my children were growing up I made sure that they fully understood that money could do some pretty powerful things from helping people in need to curing sick pets who were actually in Dire Straits the kids knew what we did and money's impact on those problems the reason and this is important even if you know money's value intellectually if you feel different about it emotionally it will trigger a subliminal response as you try to develop more money in your life there will be deep-seated reasons why it's okay to skip investing build your career Etc Because deep down you don't believe that money is a good thing the next point is not incorporating regular specific non-negotiable contributions to an investment account as part of of your normal bill paying process at this very moment there are a lot of people watching this video who are having a hard time paying their bills they have too much month at the end of their money as the saying goes but I'm highly confident that the vast majority of those people have a higher quality of life today than they did a decade ago certainly two decades ago they live in a nicer apartment drive a better car eat better food the things that they spend their money on today are different than they were 20 years ago this is called lifestyle creep and basically it means that as you earn more money you start to spend more money on things that you want versus things that you need but by our grandparents standards we have a lot of stuff we live a better life our health is better our surroundings are better sometimes many times in fact the need to consume today beats the need to get ready for the future but this is controllable if you treat investing like a bill and you force lifestyle creep to be a little less creeping this will be an absolute game changer for many of you later on in life if you like this video check out that video it's one of my most popular it's called the big difference between the rich and the poor in retirement this is Jeff Schmidt thanks for watching

Channel: Holy Schmidt!

Views: 191,108

Keywords: keeping you poor, money habits keeping you poor, better money habits, better money habits, better money habits bank of america, better money habits budgeting, better money habits video

Id: MjroJeG4dZ4

Length: 11min 12sec (672 seconds)

Published: Sun Apr 30 2023