What are the big mistakes most people make with money?

In this blog I will list some of my top Quora answers for the last few days. 

If you want me to answer any questions on Quora or YouTube, don’t hesitate to contact me.

What are the big mistakes most people make with money?

Everybody I know, including me, has made mistakes with money.

Some people just make the same mistakes over and over again, whilst others learn from their mistakes.

Here are the biggest mistakes I have seen

  1. Not having a good attitude to risk
  • Too many people are either at one extreme or the other. Either they are greedy and believe in get rich quick schemes (10% or less of the population) or they are only concerned with avoiding losses and not gaining (the majority of people). Ironically, people in the last category often do nothing which is a much bigger risk than doing something, because inflation erodes money in the bank.
  • Assuming that more volatile assets are always riskier. That isn’t the risk. See Buffett’s explanation below. Buffett, Jack Bogle and others have all made the point that government bonds and especially cash are higher risk than holding stock indexes if you are a long-term investor (20–30 years) and don’t panic during the bad times.
  • Likewise in your career, it makes sense to take calculated risks especially when you are young. Yet most 21, 22 or 23 year olds are obsessed with security when they come out of university.
  • Most of the wealthy or relatively wealthy 20 and 30 odd year olds I know have taken some pretty big calculated risks including emigrating, starting their own business and/or getting paid on results and not time.

2. Overspending

  • There are people that are broke on all ends of the income distribution.
  • There are countless former millionaires and even multi-millionaires
  • Studies have shown that over 30% of lottery winners go broke as do 60%-80% of former professional athletes, some of whom earned $100-$700m in their career. So, making loads of money isn’t a guarantee of financial security if you make loads of mistakes like overspending and having multiple divorces.
  • Linked to the last point, vices are one of the biggest reasons for over-spending. It is much easier to become broke if you have a gambling or drink problem.
  • You could also put debt into this category. Not all debt is bad debt though, but most forms of consumer debt are.

3. Not thinking long-term

  • We do need to discount the present because the future is uncertain, yet those that are able to think long-term are often rewarded.
  • Very few 21 year olds coming out of university have the foresight to focus on how much they might be earning at 30 or 35.
  • I will give you an example. Getting paid on performance/results (starting your own business, getting paid on commission etc) is a very sensible decision in certain circumstances if you are young enough to take the risk. Yet in the short-term it won’t be good financially in most situations

4. Not being persistent enough

  • Working hard and smart is great. What is even greater is working hard and smart for a decade if needed, even if you aren’t seeing the results
  • Most people give up after one failure.
  • If something was easy, then everybody would do it. Many people have skills. Few have execution. Very few are persistent enough to keep executing.
  • The ability to play the numbers game, and fail more often than not, is also a form of persistence. You might have to try 100 ideas in business for 5 to work.

5. Not trying to break norms

  • Normalcy bias is the tendency for people to care about what’s normal.
  • But by definition, it is hard to outperform in an area if everybody else is doing it.
  • Quick example. 10 years ago I knew some people who used LinkedIn to get sales in business. Many people were annoyed. LinkedIn was a “CV hub” at that point. Yet because most people weren’t using the platform for that purpose, he would get a 20% strike rate (1/5 people would accept a meeting from a copy and paste message), but most people were annoyed. These days, 90% of people neither get annoyed nor accept his invitation to a call/meeting because it is “normal” to use LinkedIn like this now. The result? When it was abnormal to use LinkedIn for such purposes, he was less popular, but he got more traction. Now it is normal he receives little popularity or unpopularity which means it isn’t as useful anymore.

I could also add more to this list including not starting the investing journey at a young enough age.

If you were wealthy would you buy a jet?

Even for people that can afford it, I don’t think it usually offers good value for the following reasons:

  1. The cost of buying and maintaining a jet can be $10m-$20m+. Some cost much more of course. Business class can cost $2,000-$3,000 and first class $10,000+. So, a jet is the equivalent of 1,000+ of those trips, and the element of luxury isn’t always higher. It is just private.
  2. As Bill Gates and others have said, face-to-face meetings are no longer the gold standard. They haven’t been for a while but covid has put the nail in the coffin of that argument. In addition to that, people are looking to fly less for environmental reasons. So, the idea that you need to fly a lot for business isn’t true in the digital age. I have done business with people in over 100 countries without meeting them in-person or visiting them. When I am dealing with people as the buyer (for example recruiters who help me for my business) I wouldn’t even accept an in-person meeting with them. I have no desire to meet a person face-to-face unless I already know. I am more than happy to do everything remotely. Less emotions are at play when you don’t like or dislike a person. When you start meeting people in person your decision making process can get disrupted by personal feelings you have towards them.
  3. Following on from point 2, we are in a different world now to the 1980s or even 1990s. We were even before covid. I often joke to my staff that if somebody approaches me on LinkedIn I do a “ties test” or a “corporate test”. If somebody is wearing a tie or looks corporate (you know like the picture below), or who boasts on their profile that their firm is big, I probably won’t engage with them. I would trust somebody who has doritos strains on their clothes more than that kind of corporate nonsense. Likewise, I trust firms with big flashy offices less than those that are humble or have no offices (online). It is cheaper, so there is less risk of cashflow issues. The point I am making is, this “fake it until you make it” stuff, or even “show people you have made it by buying flash suits, offices, jets etc” is very old fashioned. It only works on people who haven’t seen enough of the world, like people who are very young who get impressed by social media influencers putting flash cars and private jets on their Instagram pictures. I am not implying that everybody who buys a jet does it to impress others, but a certain percentage do.

4. Even if you want a private expertise, it would be cheaper to rent a private jet rather than buy one.

The exception to this would be if somebody is a frequent traveler who has a lot of security concerns.

In that case, it makes sense to avoid busy airports for security, as well as safety and convenience, especially if you are a billionaire and not merely very wealthy.

As an aside, private jet ownership was falling even before covid – Why are billionaires hiring private jets instead of buying their own?, perhaps for some of the reasons alluded to here.

Zoom or calling from your office or home is much more comfortable than any flying experience – including privately.

Should I pull money out of my stock account before the election? The money I have in there is going to be used within the next 6-8 months.

Thanks for the question. Clearly not and I hope you avoided this and anybody reading did too.

Markets have soared since the election and even before the covid-vaccine news came out.

You might say this is hindsight but I have written tens of answering pointing out that:

  1. Nobody can predict markets
  2. Markets usually go up but sometimes crash and nobody can know when this will happen
  3. That most people thought that markets would go down in 2016 if Trump got elected after he beat Clinton. He was elected and markets went up.
  4. Nobody can time the markets.

5. Therefore, as a result of number 3, don’t be surprised if markets rise even if there is a disputed election or unclear election.

What happened? The result was unclear for days and the election got disputed….and is still being disputed.

This happened after Germany, France, the UK and other European countries went into lockdown.

And how did markets react? In the opposite way to how the media and people terrified of these events thought – they went up.

Yet I fully expect people to be worried again in 2024, and maybe even sooner, as there will be mid-term and elections in some other key countries.

That doesn’t mean that markets will always react in the opposite way to how the media predict.

That also doesn’t mean that markets will always go up every time there is an unexpected event or election.

It merely means that nobody can predict in advance of the results, so staying invested makes sense.

Anybody who did pull their money out shouldn’t feel too bad though.

Pulling money out of the markets is one of the biggest mistakes investors make.

It tends to happen whenever there is an election or an unexpected event (9/11, covid etc).

Yet it is also probably the biggest reasons why do it yourself (DIY) investors don’t do well investing by themselves most of the time.

I would add one caveat though. You say that you want to use the money in 6–8 months.

In which case, it would be perfectly rational to start to move money towards cash and bonds.

Markets beat bonds and especially cash long-term, but are more volatile.

The election doesn’t make a difference in this case though, but now markets are up 10%+, it would make sense to rebalance towards bonds considering you need the money soon.

How can I get a starting 6 figure salary with just a bachelor’s degree?

You have a number of options:

  1. Take a risk

This could mean:

  • Starting your own company. Better that you get good at something first and solve a problem that consumers or businesses are facing. That is why it is better to start a business which you have experience in
  • Get paid on performance and not time. This could mean being paid on commission, as an affiliate, mainly on bonuses or a low basic salary and high incentives (for example a recruiter).
  • In reality you might need to try 3–4 ideas and be very persistent for one to work

2. The conventional route

  • It is still possible to earn six figures or more getting a job
  • Yet most people on six figures are either very highly skilled (like doctors or dentists) or they are willing to do things that others aren’t willing to do. For example, if you are willing to work in a dangerous country as an expat in oil&gas…..and this also requires a high-skill as well
  • Another route is to work your way up. In other words, start at the bottom, become a manager of a restaurant/bar or whatever, then become a regional manager, eventually become an executive

Ultimately there has to be some barrier of entry. That is the commonality.

One barrier is high skills. Another barrier is being willing to do things that others won’t.

That can include taking big risks or moving overseas, or take many other forms.

What isn’t possible is just to rely on things which won’t always be sustainable like a hot economy.

Things like that come and go, and then come back again.

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