Investing is the main key to financial freedom. However, instead of making big bucks through investing, many people lose their hard-earned money instead. The problem here isn’t investing itself, but the way they choose and settle on a decision.
One of the world’s greatest investors, Warren Buffett, who was branded as Oracle of Omaha, stated two important rules of money. First, never lose money. Secondly, never forget the first rule. Yet, losing money is pretty difficult, especially when you’re just still starting out on your journey.
If you want to reach financial freedom much faster, here are the investment mistakes you should avoid at all costs this 2022:
1. Not paying attention to your mortgage rate
Houses are expensive. For ordinary people, it takes a lifetime to buy something as costly that’s why there are 30-year-long mortgages that are being offered in the market. A house is probably the biggest investment that individuals living from paycheck to paycheck can make.
When buying a house, the mortgage rates are always taken for granted. It’s rare to see people giving importance to a one percent difference in the mortgage rate, but you should take that one percent seriously and try going for better deals if possible.
Let me give you an example of how significant one percent is.
For instance, you are buying a house worth $300,000. If you would give a 20% down payment, your mortgage rate could be lowered down to 3% instead of 4%. With a 1% mortgage rate discount, you could save $134 every month.
At first glance, a hundred bucks don’t seem to be a big money, but if you would give it a second thought, it’s actually big money when to add up together— $1607 a year or $48,240 for 30 years. This is equivalent to an entire year’s salary for most people. So, if you could get that 1% mortgage rate discount, you could save a year’s worth of salary.
The opportunity cost of the money you could’ve saved is massive if you won’t just let it sit in banks. If you invest that $1607 a year in S&P 500, you are going to end up with $293,000, almost the same amount as the house you purchase, after 30 years.
Hence, if you are not paying attention to mortgage rates, and not making any effort to lower them down, then you’re making the mistake of throwing away a hundred thousand dollars.
2. Not paying attention to your looks
People nowadays seem to give little to no importance to appearance when it comes to wealth building, but it actually matters. Here’s the truth: Beauty pays well.
This sounds a bit horrible, but studies found that attractive people do better financially, compared to those who look a bit inferior to them. This is a bit harsh, but if I come to ask you who would you trust more—a guy with messy hair, dirty-looking clothes, and long unshaved mustache, or a neat-looking guy, wearing clean clothes? We shouldn’t just by mere appearance, but I can bet you would choose the latter.
Several studies have shown that the better a man looks, the higher the starting salaries they receive, and the faster their earnings increase in their first ten years. On the other hand, a woman’s looks have little to no impact on their starting salary. However, they received a more significant improvement in salaries in the long run.
You can’t surely change your genes to look naturally beautiful, but there are a lot of ways available to look good. Try dressing up properly, fixing your hair, exercising, and grooming. You can make yourself look more attractive than you can imagine. Invest in your appearance.
3. You always have an option
We are all chained in the cycle of going to school and looking for a job that will put food on the table. This is how our mind was molded since we were young, so we think we have no other choice but to follow what everyone else was doing. But you know what? You always have an option.
It’s up to you if you are going to find a job just for the sake of making ends meet or choose to do something that is meaningful. Something that makes your heart run wild. You are not obligated to take out a student debt and go to college. You are not obligated to find a job. If you have an idea in mind of what you badly want to do, follow it.
4. Borrowing money to launch a new business
Many aspiring entrepreneurs believe that money is all it takes to start a business. That all they need is capital to begin. But that shouldn’t be the case, especially if you have no experience in running one. You will just end up with debts.
These days, there are several ways how you can start out a business with little to no capital. Only borrow money when you have a few dollars at best and come up with a strategic plan on how to expand.
5. Timing the market
If you are planning to enter the stock market, you should know that it is impossible to time the market. Despite the talks that we are on a bubble, no one accurately knows when that bubble is going to burst. So, rather than timing the market, you should look for strategies that you can use to yield profits.
One of the best stock market investing strategies is dollar-cost averaging. Through this strategy, you won’t need to time the market since all you need to do is invest gradually, hitting both booms and bottoms. If you are thinking that you’ll lose money when the money hit rock bottom, you are wrong. The overall market is rising, so you’re more likely to win than lose.
6. Confusing trading with investing
In the stock market world, there are traders and investors. A trader is someone who buys a stock and sells it the same day, or in the next few days. The main goal of these traders is to profit from the price fluctuations in the market.
On the other hand, investors buy tiny pieces of well-established businesses and let their value grow over time. Trading is short-term while investing is long-term.
7. The sunk cost fallacy
If you are hearing this for the first time, you might be a bit confused about what this means. The sunk cost fallacy is basically just the desire not to see your past investments go to waste since you have already paid fortunes for them.
However, you’re committing the suck cost fallacy if you hold on to these investments even if it does you no good anymore. You have to make a decision just to justify your previous spending but decide on what would benefit you best in the future.
8. The paradox of choice
Although having a lot of choices seems to be a good idea, it actually comes with a lot of disadvantages, In fact, the wide variety of choices that we are all given a chance to choose from is the very reason why most people can’t excel in what they do.
For instance, because there are so many investment opportunities in the market, it becomes pretty hard to choose where to stick. In cryptocurrencies? Stock companies? Or Forex? Sometimes, having a few choices is better than having a lot. This also applies to your personal life.
Don’t take a lot of time picking from plenty of options on what to eat, drink, or wear. Avoid wasting so much time and willpower on trivial things. Focus on the things that make you happy.
