Having helped hundreds of young professionals learn about money and make better financial choices, I’ve noticed there are some common mistakes that hold people back and stop them from making progress. The good news is that if you know what these things are, you’re going to be in a much better position to avoid these problems and get the results you want.
If you don’t avoid these common mistakes, you’ll struggle with information overload and paralysis, won’t be able to see a clear path from where you are now to your most important money and lifestyle goals, and won’t have a good system to make money decisions. In short, you’ll end up (or remain!) stuck.
On the other hand, get these things right, and you’ll be able to cut through the noise, see a clear and easy to follow path from where you are now to your biggest money and lifestyle goals, and develop a quality system to make money choices.
So what do I see that holds people back from making great financial decisions?
Not understanding money psychology
Young professionals want it all. We have a burning desire to jam pack as many experiences as we can into our lives, often with little thought for the future. Our desire for short term satisfaction conflicts with our goal of building assets, and often results in slower progress toward the really important things we want in the future.
A client of mine (Kylie) recently experienced this in action. Kylie had been really struggling to build savings and assets and kept getting sidetracked. This had been going on for some time, and while enjoying each day she was becoming frustrated with her lack of progress.
We laid out a plan and set clear targets to show a clear pathway from where Kylie was now to the things she wanted for the future. Once targets were set the next step was a shift in thinking, where Kylie changed her thinking to consider how every money choice meant moving closer to her goals. Following this shift, Kylie found it much easier to ‘choose’ the things she really wanted over short term and short-lived pleasure.
Hack your money psychology and make faster progress.
Thinking there is one path to success with money
When it comes to money, our friends/family/neighbour/uber drivers all seem to have an opinion about the best thing to do, and swear by their advice telling us how something worked well for them or someone they know. Unfortunately the idea of a ‘good’ money choice is a myth. Any decision can be good for someone and terrible for someone else.
One of my clients learned this the hard way (let’s call him Shane). Shane’s mates were professional investors, and after extended discussions Shane invested with them in some complex longer term investments.
Shane started kicking butt in his job and received a healthy payrise, which meant his savings increased faster than he was expecting. Shane wanted to buy property, but to do this he needed the money he’d invested which was locked away. Shane had to delay buying property at a time prices were rising strongly, and he missed out on this growth. Shane’s investments were ‘good’ investments, but these investments weren’t good for Shane.
Don’t get caught out thinking there is one set of ‘good’ money decisions, when you’re setting up a strategy make sure your choice is going to be great for you.
Not understanding risk
I was working with some clients (let’s call them Dave and Cara), who were good savers and wanted to buy property. Shortly after they bought their first property they decided to have children and Cara wanted to take some time out of the workforce.
When Dave and Cara ran their numbers, they discovered a problem – their living expenses and property costs didn’t fit within the lifestyle they wanted. Sadly, Dave and Cara were forced to sell their property. While Dave and Cara made some money from the property investment, it took four years to get back into the property market and when they purchased another property, values had increased and they had to pay a much higher price.
Dave and Cara thought they were doing everything right but had ignored one of the risks we most commonly see being managed poorly by young professionals, lifestyle risk. Dave and Cara didn’t think about how their choices factored into their lifestyle goals and paid the price.
When setting up your money strategy you have to ensure your most important lifestyle goals fit. This will reduce lifestyle risk, help you avoid problems and setbacks, and position you for success with your money.
Not educating yourself about money
When you don’t know the rules it can be scary to make big decisions around money. Because you’re confused with all the options and worried about making mistakes, you end up doing nothing and missing a bunch of opportunities.
I’ve recently helped a client (Pete) that wanted to buy property but had no idea how this worked. I helped Pete understand the rules around property, and we built a strategy that fit into Pete’s money and lifestyle plan. Pete was already in a solid financial position so once he had this knowledge he was ready to buy. Pete found a great property and was stoked with his purchase.The thing is, Pete could have purchased his property much sooner if he had educated himself, and would now be in an even stronger financial position.
Make it a priority to educate yourself on the rules around money and what’s possible for you, and you’ll be ready to take action sooner and will avoid the inertia that slows down so many people.
Thinking you should do it all yourself
Young professionals are effective in most areas of life with the one general exception of money management, and many become frustrated. Because you could probably figure this out yourself (if you had the time or inclination) doesn’t mean you should! Without knowing the rules and common traps you can end up so worried about making mistakes you do nothing and miss opportunities to make progress faster. You can also make mistakes that slow you down and make it even harder to get the things you really want.
One of my clients (Katie) was a young executive doing well in her career but couldn’t seem to make any progress with her money. Katie wanted to buy property but couldn’t get any closer to her goal. We helped Katie build out a property strategy and set up her finances to make her life easier and increase her chance of success. Katie has been kicking butt ever since.
Consider outsourcing by getting the help of a professional who can help you use the rules to your advantage and push you to get the things you want faster.
Thinking your goals are too big and far away to take action now
I’ve been working with some clients (Dan & Lily) that wanted buy their dream home not too far from the Sydney CBD. Because this target seemed so big and scary, Dan and Lily had put this in the ‘too hard’ basket and had lost focus, and as a result they’d been experiencing a lot of ‘leakage’.
After I helped Dan and Lily build a plan they realised what they wanted to do was achievable in a much shorter timeframe than expected. They knew exactly what needed to be done short term to stay on track for their big goal, Dan and Lily got a huge motivational boost. They nailed their targets and got the property they wanted just over a year later.
As a young professional, getting from where you are today to your ideal lifestyle and financial independence seems like a huge undertaking, but when you break down your big targets into smaller goals we often find they are achievable in a much shorter timeframe that you think.
Don’t put your goals in the too hard basket! Take the time to build out your strategy, focus on your targets, and avoid the leakage that holds so many people back.
Not knowing when you can benefit from help
When trying to make smart money choices it’s hard to know what the best options are and where to start. I can tell you from experience the worst strategy you can follow is doing nothing, because inaction means you’re not taking advantage of the options available. Most young professionals have little idea what professional help is available to assist with money management, how this can work, and how it can help them.
Good advice is not what most young professionals expect. Professional advice can help you manage your cashflow better, cut your tax bill, grow your savings faster, buy your first home or investment property, and grow your assets and investments. Advice can help you set up a clear and easy to follow path from where you are now to the money outcomes you want for the future, while enjoying your lifestyle today.
Having a good Adviser to guide and coach will also save you time, and help you avoid common mistakes like those covered in this guide/post. Take the time to educate yourself on what great advice is and how it can help you get the things you want faster and more easily.
Young professionals face some key challenges when it comes to money. If you don’t know what they are and set yourself up to avoid them, you can run into trouble and suffer through much slower progress, eventually having to (gulp) settle.
These challenges are all unique, but there’s also some common themes. The big issue here is knowledge, because without enough knowledge you won’t know when you’re heading for trouble and when there are opportunities. You need to build your knowledge around money rules and how to use them to your advantage, the key issues and roadblocks, how to set up your finances to make it easier to get the results you want, and when you need some extra support. Once you’re clear on this you’ll be well positioned to get the most out of your money and set up the lifestyle you want.
Invest in yourself. Take the time to understand what you should do to get the most out of your position and it will pay huge dividends. Take action now!