Common money mistake that costs $492,000

It’s something that’s all too tempting to do when you’ve got money, but this mistake could be costing as much as $492,000.

Trying to figure out how to get the best results with your money is hard.

There are so many options – you end up overwhelmed with information overload. Then there’s the mixed messages and hidden agendas, it’s hard to know who to listen to or who to trust. And then there’s the fear of making a mistake that will cost you a bunch of money that you later regret.

It’s no wonder investing often ends up in the too hard basket.

When this happens, it’s common for people to stick to the default setting of keeping money in the bank instead of investing into assets that will grow into the future. Saving money is always risky, but as you can see from these numbers over the long term it could be costing you serious dollars.

Consider this example. The long-term return on a savings account versus shares in Australia is 4.4 per cent compared with 9.8 per cent. If you’re earning the average income in Australia of $92,000, and saving at the average household savings rate of 4.5 per cent, it means you’re saving $80 per week.

Saving this amount of money each week in cash would grow to $52,138, $133,028 or $258,525 over 10, 20, or 30 years. This compares with the same amount of money invested into the sharemarket which could grow to $70,205, $256,521, or $750,979 over the same period.

Investing instead of saving can pay off over a long period of time. Picture: iStock

The difference between the two comes in at a whopping $492,454, showing the power of putting yourself in a position to take confident action.

How to confidently get started investing

There are six strategies to build wealth that are available to everyone – save in cash, pay down debt, buy shares/funds or ETFs, buy crypto, buy property, or invest through superannuation.

It’s not hard to figure out what these options are, the tricky part comes when you’re trying to choose which option or options are best for you.

A solid starting point here is taking the time to understand the advantages and downsides of each. You should understand the potential financial upside of each, as well as the risks – then choose the options you feel give you a good balance between both.

Understand how different investments fit

Different investments or wealth-building strategies will fit in with your money in different ways, some better and others worse.

For example, buying a good investment property will deliver strong growth over the long term, but in the short term will often create a cashflow cost for mortgage repayments and property costs that will need to be funded. Whether this will or won’t work for you depends on you and what’s going on with your money.

If you look at a potential investment in absolute terms you may not get the entire picture. When considering any investment, you need to think through how it will fit in with the other things going on with your money and lifestyle.

If things are complex, consider getting some quality professional advice to map this out – the more you have going on with your money, the easier it will be for a good professional to add value here.

Make your choice and take action

As the saying goes, you miss 100 per cent of the shots you don’t take. When it comes to money, it’s common to get excited about great ideas but struggle to take the action needed to turn them into results.

The key to investing is take action. Picture: iStock

Once you’ve taken the time to understand your options, how they fit with your money, it’s time to make your choice. Once you decide what you’re going to do, map out the key action steps needed to make it happen – then follow them through.

Keep in mind that your money strategy and investments can and likely will evolve over time, and often you just need a starting point. Don’t let trying to get it perfect stop you from getting it done.

Refocus and refine

Your money and investing strategy will evolve over time. The first step is always the hardest one to take, but from there you immediately start building momentum that will make your next steps easier. You can (and should) then leverage that momentum and keep it building over time.

The key here is keeping focus on your goals and targets, and the next steps that will have the biggest positive impact on your progress towards your goals. At least once every three months, take the time to refine your targets and consider your smartest next steps.

You should also make a point of checking in on the progress you’ve made and celebrating it. It’s common for us to focus on all the things we don’t yet have – but this can be demotivating and unhelpful, and make it harder to maintain your financial focus.

But when you take the time to look back at the progress you’ve made, you’re often pleasantly surprised, and this can give you a motivational boost to keep things moving forward.

The Wrap

The amount of options out there when it comes to your money can be overwhelming, but only if you let it. While the options can be confusing, the process of deciding the smartest thing for you to do is relatively simple.

Understand your options, consider how they fit with your money plans, make a choice, then refine and level up your approach over time. Follow this process and you’ll put yourself in a position to take confident action and start driving results, building momentum you can leverage to make your goals happen faster and easier.

Your future self will thank you for it.

Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth, the creator of Smart Money Accelerator, author of ‘Replace your salary by Investing’ and the host of the Mo Money podcast He runs free online money education events, you can check out all the details and book your place here

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.

Originally published as Common money mistake that costs $492,000