The Experts Weigh In: What Is the #1 Mistake People Make With Their Money?

Posted in • January 18, 2012

Throughout the month of December, we asked Go Banking Rates readers to vote for their favorite finance experts. The competition was tough, but ultimately, the top three winners of the 12 Days of Finance poll were announced in January as Robert Kiyosaki, David Bach and Jeff Yeager.

Since these three men were voted as the people’s choice for the best expert advice, we decided to get their take on a question that everyone has probably wondered at some point: What is the number one mistake people make with their money?

Below are the responses from Kiyosaki, Bach and Yeager:

robert kiyosakiRobert Kiyosaki (Winner)

They do stupid things with it–because most people have had very little financial education and don’t really know what to do with their money.

For example: Most people save money–instead of investing it. Or “gamble it away” in the stock market … since, in my opinion, investing in stocks (or the stock market) when you have limited financial education is gambling.

Another mistake people make is giving their money to a financial planner without the knowledge or education needed to tell a good financial advisor from a bad one.

David Bach (2nd Place)

“The #1 mistake people make is they don’t make their financial plan automatic…

Here’s what you need to do: The moment you earn money–assuming you’ve got a job, assuming you have a business–when that money comes in, it needs to go automatically into a bank account.

What is unbelievable to me is that in this day in age, many of you are still getting a physical check,you’re taking that check, you’re waiting for it to come to you, you’re opening it up then you walk it to the bank and you deposit it. By the way, when you do that you’re wasting an average of 12 hours a year doing that. Ridiculous! You get your money faster if you automatically deposit it. So, you’ve got to have that money automatically deposited into your bank account.”

(click here to read the full transcript)

Jeff Yeager (3rd Place)Jeff Yeager

Spending so much of it on stuff they think will make them happy, only to be disappointed time and again. A survey a few years ago showed that Americans express regrets about nearly 80 percent of the discretionary purchases they make, and that’s within the first year of having made the purchase!

As a result of the estimated 5,000 commercial messages each of us is bombarded with every day, impulse buying and buyer’s remorse have become epidemics in our culture. Most Americans could solve their financial problems–including getting out of debt and building their savings–if they simply stopped buying so much crap they don’t need and ultimately will decide they don’t even want.

That’s why the spending side of personal finance–what you choose to buy and consume every day–is a far more important and practical means of getting your financial house in order than complicated and risky ways to make more money. In fact, not to quibble with Ben Franklin, but a penny saved is actually worth two to three times more than a penny earned, when you factor in taxes and all of the costs associated with going out and earning that penny (e.g., education, commuting costs, child care, lunches out, wardrobe, etc.)

How to control discretionary spending? Three tips:

  • Wait a week between the time you see an item in the store and when you go back to buy it. Half the time you’ll never go back to buy it, and sometimes when you return with the intention of buying it, you’ll look at again and reconsider.
  • Do an annual “What the Heck Was I Thinking?” audit: Review your major purchases from the past year and ask yourself: “If I had it to do over, would I still buy that?” Keep a running list of purchase you regret–carry it in your wallet!– and you’ll gradually learn from your mistakes and buy fewer things that’ll ultimately disappoint you.
  • If you’re going to shop with friend, please shop responsibly and always appoint a Designated Cheapskate: We spend more when we shop with friends, so ask someone in your party to refrain from buying anything and be a voice of reason. When someone in the group goes to buy something, the Designated Cheapskate is authorized to say subtle things like, “So, how’s little Johnny’s college fund looking these days?”

Will Rogers said it best: “Too many people spend money they haven’t earned, to buy things they don’t want, to impress people they don’t like.”

Do You Agree?

These three experts undoubtedly have very different answers to this question. Kiyosaki believes people don’t make educated decisions with their money, while Bach argues they don’t incorporate enough automation. Yeager, on the other hand, says the biggest mistake is overspending.

Who do you agree with, or if you don’t agree with any of these answers, what do you think is the biggest mistake people make with their money?

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