Editor’s note: This article was first published in January 2013, during Spain’s economic crisis; its description of the Afinsa and Fórum Filatélico cases and the preferred-shares scandal as recent events reflects that time.
Have you ever drawn up a financial strategy or plan to build your personal wealth little by little? If your answer is no, you belong to the 85% of the world’s population that hasn’t. If you’re Spanish, you probably belong to the 95% of Spaniards who haven’t, and that would explain why fewer than 0.8% of Spaniards reach retirement with more than €1 million. Of course, as a result of this crisis, Spaniards are becoming aware of how important it is to set financial goals.
Older people often say they wish they could go back in time and correct the mistakes they made. You won’t need to say that, because those same people who can’t go back are telling us what their worst financial habits were and that they would have got rid of them if they had known. Do you recognise any of them in yourself right now?
Here are 6 bad money habits that many people share
1. Spending too much money on things I didn’t need
Let whoever is without sin cast the first stone. Was it really necessary to drink myself silly every weekend? Did I really need to replace that car that never gave me a single problem? Is it worth always having the latest phone, being the first to buy it even at a higher price? And so on and so on…
2. Not saving and/or living paycheck to paycheck
This is probably largely due to the previous point, although many people will have to solve the mystery known as “the financial magician”. You earn €1,000, pay all your bills and live paycheck to paycheck. Two years later you earn €2,500, pay your bills, say you don’t waste money, but you’re still living paycheck to paycheck. It’s called the financial magician because if you admit you don’t waste money… now you see it, now you don’t: where did the missing €1,500 go?
See also: This is how the 1% makes money
3. Gambling
We’re not talking about being addicted to casinos, slot machines or bingo, just about playing the lottery. Many of these people admit that if everything they had “invested” in the lottery had gone into a piggy bank, opening it after 20 or 30 years would have been like winning the lottery. Remember Warren Buffett’s advice to watch out for the little details and small expenses.
4. Paying only the minimum on credit cards
Many people acknowledge that credit cards can be very necessary at certain times, for various reasons, and can get you out of a tight spot. The problem comes when you leave the full balance outstanding and only pay the minimum. Any of them would advise you to pay off the debt as soon as you manage to save some money, because there is nothing more toxic for a household’s finances than paying off a credit card. Read: How credit cards work and Types of cards.
5. Losing part or all of your savings in an investment
Ironically, one of the worst mistakes a person can make within a financial plan is not investing their money at all. Here it counts as a bad habit because of the outcome.
Of course, most people who say they lost their money in investments lost it because of the type of investment. Recently we’ve had the Afinsa and Fórum Filatélico case (two Spanish stamp-investment companies that collapsed in 2006), as well as the biggest scam in history carried out with the approval of a government, the CNMV (Spain’s securities regulator) and the Bank of Spain itself: preferred shares (preferentes).
Coincidentally, most of the people who fell for these were people who were afraid of risky investments. Still, some people have also lost a lot of money on the stock market by getting in at a bad time or picking the wrong company, and that brings us to the last point.
6. I should have paid more attention to financial education
Many say they were so busy working that they never had time to make money or to think about how to make their capital grow. To achieve that you have to take risks, and to take risks you need to know the ground you’re moving on, so you have to get up to speed (call it studying or reading). I still say that the stock market is the most profitable investment, by far, but you have to distinguish between “investing in the stock market” and “playing the stock market”.
The rest of the bad financial habits are practically covered by these points. Some admit they have even spent more money than they earned, others that they went into businesses blindly, knowing deep down that it wouldn’t work out. But the vast majority admit that if they could go back, they would learn about finance, save and invest more, and spend less.
Further reading
Featured image: Ken Teegardin, CC BY-SA 2.0, via Flickr.
