4 Ways To Become Poor

Everyone has bad habits… especially when it comes to money.

We’ve all seen them in our selves, in our families and in our friends.

The four bad habits below might not put you in the poorhouse, but they’ll make your financial life a lot more challenging and uncertain than it needs to be.

So if you want to protect – and grow – your money in the years to come, avoid these four habits…

1. You have an unhealthy relationship with money

Some people view money like they would that bowl of ice cream while they’re on a diet… kind of forbidden, gluttonous, but so nice, though in a feel-bad-about-yourself-later kind of way.

They think that money is dirty, and even a just a little bit is bad. Or that liking money, or the things you can buy with it, mean that you’re selfish and greedy.

If any of this rings a bell with you, bad news: You’re probably never going to be rich. If on some level you don’t like money, you’ll probably never have a lot of it. If you think money — and being rich — is “bad”, it means that you don’t really want it. There’s a voice in your head — maybe you can hear it, maybe you can’t — that’s going to stand in your way.

If that’s you and it’s just the way you feel, that’s fine – as long as you also realise that you’ll never have much money.

But if you think you’d like money, the first step is to make sure that your brain isn’t working against you. You need to stop and think about your real attitude. And either embrace it… or start with a clean slate that says, “money is good”.

Warren Buffett and Li Ka-shing (as well as other high-net-worth individuals) don’t avert their eyes in shame when they look in the mirror… and if you do, you’ll have a difficult time joining their ranks.

2. You think that money is an end in itself

Chances are that you’ll stay poor if the number in your bank or brokerage account defines you.

A far smarter (and more productive) strategy is to re-orient your thinking so you view money as a means to an end.

What’s that end? Options. If you have money, the range of opportunities available to you – what you can do with your time – expands dramatically.

Conversely, no money equals fewer options. If you’re struggling to make ends meet, your menu of opportunities is limited because you’re focused on making rent or the car payment tomorrow. You can’t choose what to do, because your amount of money constrains you.

3. You don’t diversify

If you keep all of your eggs in one basket, you’re setting yourself up for big losses – and possible disaster.

The idea behind diversification is simple. It means putting your eggs in different baskets. That is, spreading your risk across different types of assets, so that a decline in value in any one holding isn’t so bad – because there will likely be other holdings that rise to help balance out the losses.

But diversification goes beyond just holding a number of different assets… what about your “personal equity”? Is it diversified?

Equity is what’s left after you add up the value of everything you own, like stocks and stamp collections and your flat. Then you subtract what you owe (on your mortgage, to the taxman or to your ex-spouse, for example). What’s left is your net worth, or your equity.

So when people say “personal equity”, they’re talking about a much more broad definition of your assets. It includes everything from financial, personal, and professional experience to prospects and earnings power. Personal equity measures how you’re going to build your equity in the future.

It’s about where you’ll be earning your living and adding to your savings in coming years. Where is your paycheck coming from? What other sources of income do you have? Where is your professional network – and how strong is it? How transferable are your skills? How many languages do you speak – and how easily could you work in a different country?

Most people work in the same country where they have almost all of their assets. And even if you do hold some foreign shares or own real estate in another country… when you factor in where and how you’ll be earning money in the future, you’re probably a lot less diversified than you think.

4. Spending More Than You Earn

Making more income is the best way to build wealth. So long as you don’t spend it as fast as you make it.

In other words, the short-cut secret to getting wealthy quickly and efficiently is to:

1. Increase your net investable income.

2. Save the lion’s share of it.

Most people don’t do this. As their income rises, so too does their spending. Some actually spend more than the extra money they make.

Why? Because having extra things—a bigger house, a newer car and assorted luxury toys—is what we’ve all been told wealth is about. We work hard to buy this stuff. And then we are happy. The more stuff we buy, the happier we are.

There are several lessons to be drawn from this:

– There is a natural tendency to spend more when you make more. If you want to become wealthy, you must be alert to this tendency in yourself and resist it.

– It is also natural to want to reward yourself for earning more money, but how much you spend on that reward is unrelated to the psychological benefit it gives you.

– Along the same vein, there is no relationship whatsoever between the price of toys and how much you pay for them. A $300 watch can look as good and work as well as one that costs $3,000 or $30,000.

Good investing!

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About Expat Financial

Expat Financial is a team of highly experienced Hong Kong based Financial Advisors. As Expats ourselves we understand the challenges of living and working in a foreign country. We use our Expat experience along with our extensive financial expertise to help you maximise the benefits of working and living offshore.

Regardless of whether you’re a financial novice or a seasoned investor we specialise in helping you to achieve your goals.

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