1. You Use Google & Think That Makes You Warren Buffett
Let's say you stub your toe on a rusty nail, ouch, but okay you can probably do a quick web search for how to treat it. After a few days, you realize there's an infection and it clearly needs some professional attention. Allow me to present a different scenario.
So you're in debt, perhaps have some student loans and aren't really doing much in the way of saving for any short or long term goal. After doing some basic, or even in depth "googling", you grasp that the solution to your situation is to have a financial plan (become financially savvy) so that you're not living paycheck to paycheck from now until eternity. From your research, you learn this means 1) paying down your debt first 2) keeping a cash savings emergency fund equal to the number of months it would take you to find a new job (usually 3-6 month depending on your industry) 3) setting up a taxable investment account that allows your extra savings to grow at a clip that outpaces inflation 4) setting up a retirement investment account through your company 403b/401k or an IRA/Roth to take advantage of company matching, tax deferred contributions and growth and 5) making sure this is all structured in the most tax efficient way. Well, to those who don't find this task to be daunting, would you still have enough time to also be good at your day job? Also, without the obvious signs of infection visible in the toe scenario, who is alerting you to any pitfalls along the way. An experienced professional is looking for red flags and monitoring to see that you remain on course. It would suck to put a whole lot of time into structuring this master plan only for it to fail because, unbeknownst to you, your portfolio can't alert you and say "hey, can you please help me get some professional attention, I'm not doing so well here". Unfortunately this is what leads to some very sad stories about people hitting retirement and finding themselves in a bind, not be able to afford the life they "planned" for. To go one step further, why wait until retirement to live the good live, if you're young and start early enough, you can build a safe retirement without sacrificing life's great experiences along the way. After all, they say it's about the journey, not just the destination.
2. Wasting time
You know how they say, time is money. Well they're right, time ACTUALLY IS money. One of my favorite examples is the doubling penny. It does a great job highlighting the opportunity cost of wasting time. If you doubled a penny each day in a month, in 30 doublings, that penny would be worth $5,368,709.12 (do the math if you dare)...but if you start 10 days late and only give yourself 20 days to double that penny, that exact same penny, is now only worth $5,242.88...the last few doublings are THE MOST crucial. So you need to start early to maximize the number of doublings you achieve in your lifetime.
3. Living a life you can't afford
The credit card was the single worst and best invention of our time (some might argue it's the smartphone....but I digress). It allows individuals to assume leverage without the full scope of the costs and benefits. Basically, it allows us to borrow money we don't have to buy stuff we need today with the assumption that we promise to pay for it in the future. This is very handy when the 70" HD is on sale at Best Buy and Super Bowl Sunday is next week plus didn't you hear me say, it's on sale! But it's detrimental when your statement arrives and you find yourself making the minimum payment month after month racking up interest expenses. I know, I know, you financed it at 0% for 1 year! Do you really think they'd keep doing that if it wasn't working in their favor? So just as compounding can work in our favor when it's money we're saving (as we learned earlier) it can be detrimental when it's money we are spending.
4. Underestimating Saving Today
Never put off until tomorrow what you can do today. It's conventional wisdom, sure, but useless unless we know what our give-up is in cold hard dollars. Our generation is seldom motivated to act, let alone compromise on instant gratification. I'm not knocking our generation, we work very hard for what we enjoy however, sometimes our decisions tend to drift to the short-sighted nature of things. Play around with the numbers and see for yourself the "hard dollars" impact of waiting to save: Click here
5. Spending (un)like we're rich
People are usually very happy to pay for value. And rightly so, true value should be adequately compensated for. But all too often, we don't spend our money the way the rich do, we spend it the way we THINK they do. Perception is key and rich people know this and use it to their advantage, but the truly rich, are smarter than they look. One of my favorite quotes from Millionaire Next Door is "big hat, no cattle." The reference, although snarky, is quite smart.
-When you drive your new SUV off the lot, it immediately loses 8% of value. Imagine investing $100,000 in an ETF portfolio and Day 1, it was 100% guaranted to lose $8,000 in value. You'd never logically make that choice, right? Did you know 86% of prestigious/luxury vehicles are bought but non-millionaires.
-You freely tip your waiter/waitress 15-20% (which is great and they deserve it) but hesitate greatly to pay your financial professional around 1% for advice that's ultimately going to make you more money in the long-run and in turn, pay for itself.