“Money is the single most powerful tool we have for navigating this complex world we have created, understanding it is critical. If you choose to master it, money becomes a wonderful servant. If you don’t, it will surely master you.” – JL Collins
Growing up, I was intimately acquainted with poverty. I vividly remember my 7th-grade year, when our class planned a school trip to San Antonio, and I couldn’t go because my mother simply couldn’t afford it. She was always upfront with us kids about our financial limitations, emphasizing that we were lucky to have a roof over our heads, food on the table, and clothes on our backs. From that point on, I knew I didn’t want to live like that. I was determined to figure out how to not only survive but thrive financially.
The irony is, when you grow up poor, surrounded by others who are also struggling, their money behaviors and mindsets can significantly influence your own financial journey. Now, in my 40s, with a $700K portfolio, I can look back and identify some key things that sabotaged my financial growth early on.
Here are 5 money mistakes that held me back – and how I finally broke free:
1. The Devastating Impact of Bad Financial Advice
In my teens and early 20s, I received some terrible financial advice that had long-lasting consequences. One particularly damaging piece of advice was to stop paying my credit cards and car note to “free up money.” I was told these actions would only temporarily impact my credit score. Boy, was I wrong! These mistakes severely damaged my creditworthiness for years. It affected my ability to get approved for new credit cards, secure a car loan, and even rent an apartment in certain areas. I had no idea how much those early missteps would haunt me.
What I learned:
Don’t blindly trust financial advice, even if it comes from someone you respect. Do your own research, understand the potential consequences of your actions, and seek guidance from qualified professionals. Your future self will thank you!
2. Falling Prey to Consumerism
This was a HUGE one for me. We’re constantly bombarded with marketing messages telling us we need this or that to be happy. It’s exhausting trying to navigate the constant push for us to BUY! BUY! BUY ! I used to justify unnecessary purchases by calling them “investments.” Looking back, I cringe! I had no idea how investing actually worked and no piece of clothing was going to give me the confidence and acceptance I was looking for.
What I learned:
Recognize that consumerism is a trap. Before you buy something, ask yourself: Do I really need this? Will it truly bring me lasting joy? Or am I just trying to fill a void?
3. Misusing the Word “Investment”
This ties into the consumerism trap. I used to throw around the word “investment” for anything I wanted to buy, from clothes to vacations. It was a way to justify spending money I didn’t have.
What I learned:
Financial success is not a hard science. It’s a soft skill, where how you behave is more important than what you know.” This quote from The Psychology of Money by Morgan Housel taught me that managing money well is more about controlling your emotions and biases than having advanced financial knowledge. An investment is something that has the potential to grow in value over time. A new pair of shoes is not an investment. Understanding the true meaning of both is crucial for building financial freedom.
4. The “Spending Supports the Economy” Myth
I used to fall for the idea that spending money was somehow my patriotic duty. I thought I was doing my part to keep the economy going. But the truth is, it’s not your responsibility to single-handedly prop up the entire economic system. Consumer spending is just one piece of the puzzle. There are many other factors at play, including government spending, business investment, and exports. Overspending can actually harm the economy in the long run. It can lead to excessive debt, financial instability for individuals and families, and a reliance on credit cards with high-interest rates.
What I learned:
- Mindful spending matters: Instead of mindlessly spending, be mindful of where your money goes. Support businesses that align with your values.
- Saving and investing contribute to the economy: Saving and investing for your future contribute to a healthy economy in a much more sustainable way than excessive consumer spending.
- Financial education is key: The more you understand about how the economy works, the better equipped you’ll be to make informed financial decisions. Don’t let marketing messages and societal pressures dictate your spending habits. Take control of your finances and make choices that support your own financial well-being.
5. Getting Discouraged by Setbacks
Saving money can be tough, especially when you’re starting from scratch. I used to get so discouraged when I would finally save a little bit, only to have an unexpected expense wipe it all out. Things like car repairs, medical bills, or even a temporary job loss would completely derail my progress. It felt like I was constantly two steps forward and one step back, which was incredibly frustrating and demoralizing. It felt like I was in a perpetual state of never having enough, and when you’ve been in that state long enough, it can feel like you’re probably just meant to struggle. Especially when everyone around you seems to be having the same beliefs and struggles.
What I learned:
Setbacks are inevitable. Instead of letting them discourage me, I focused on developing a more robust emergency fund and creating a budget that could withstand unexpected expenses. I am reminded regularly of Confusion words “Our greatest glory is not in never falling, but in rising every time we fall.” and strive every day to to view these setbacks as learning opportunities and to adjust my financial plan accordingly.
Turning Point:
My financial life truly changed when I started taking ownership. I began questioning everything, seeking knowledge, and making informed decisions. I shifted my mindset from scarcity to abundance, believing that I could build wealth and achieve financial freedom. It wasn’t easy. I had to unlearn a lot of bad habits and confront limiting beliefs. But the journey has been worth it. Vicki Robin and Joe Dominguez said say it best in their book Your Money or Your Life “Financial independence is not an end in itself, but a means to an end.” This quote reminds us that financial freedom is not just about accumulating wealth, but about using it to live a more fulfilling and meaningful life.
Resources That Helped Me:
Here are some books that played a pivotal role in my financial transformation:
- The Psychology of Money by Morgan Housel
- Your Money or Your Life by Vicki Robin and Joe Dominguez
- The Simple Path to Wealth by JL Collins
- Choose FI: Your Blueprint to Financial Independence by Chris Mamula, Brad Barrett, and Jonathan Mendonsa
- The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf
- Freakonomics by Steven D. Levitt and Stephen J. Dubner
What are your biggest financial challenges? Share in the comments below!