5 Savings and Investment mistakes and how to avoid them

  

There are a number of mistakes that people make when trying to save and invest, which lead to their failure to achieve financial freedom. Here are a number of such mistakes and how you can avoid them.

Savings & Investment Mistake #1

To put all your savings in your first investment. This is a very common investment mistake and it leads to capital burnout in the case of business failure or slow returns. You can avoid this mistake by investing only a maximum of 50% of your savings in any new venture. As much as this will affect your potential earning power and profit margin in the case the investment is successful, it will enable you to have some capital to start again in the case that the investment fails.

Savings & Investment Mistake #2

To stop saving after investing, with the hope that their investments alone will give them financial freedom. But then they would have nothing to hold onto and would return to square zero should the investment fail. To avoid this mistake you must commit to and develop the habit of continuous savings. Financially successful people never stop saving, they are always putting away a percentage of their earnings for future purposes, to join their league; you must do as they do. 

Savings & Investment Mistake #3

To reduce your savings and increase spending after investing. A lot of people feel so happy after their initial breakthrough in investment and they erroneously think that they have arrived, they minimize or discontinue their savings or at best maintain the same percentage they were saving before their breakthrough, and conversely, they increase their spending and in a short while they are broke again, and then they wonder what happened. It’s simple, the natural effect of the Parkinson’s Law. To avoid this mistake you must develop a habitual awareness or consciousness of the Parkinson’s Law. Never celebrate a pay rise, feel a responsibility and urge to save some of it. Let the reason you are happy to get higher pay be that you will be able to save more instead of that you will be able to spend more. Always think about the bigger picture, save and invest your way to the top.

Savings & Investment Mistake #4

Not understanding the simple financial details of your investments. Most people who are investing do not have basic financial knowledge. They do not understand the difference between capital, revenue, and profit. So, many times they ‘eat up’ their capital and before long the business crashes. To avoid this mistake you must go beyond understanding your business investment to know the basic financial details of your business. At the end of every investment cycle (Stock―>Sale―>Revenue), you must provide answers to these questions; (a) How much capital was spent in purchase 0f stock? (b) What was the unit selling price of each stock? (c) How much did it cost you to sell? (d) How much was the total amount generated from sales (Revenue)? (e) How much was your profit (Revenue-Costs)?

Savings & Investment Mistake #5

Deeping into your savings every now and then, to solve what they tell themselves are ‘compelling needs’. This is probably the case with many people who practice savings and end up never investing. Many people lack the discipline to keep to their word and leave their savings for the long term. You can hear things like; ‘is it not my money?’, ‘How will I have money lying idle, meanwhile I have a compelling need’? Etc. But the question they don’t answer often is, is ‘tackling compelling needs’ one of the reasons you saved up the money? If you hadn’t saved the money, wouldn’t you have spent it by now? So what would you have used to tackle the ‘compelling need’? or would the ‘compelling need’ not come your way because you have no money?