Kevin O’Leary is a probably best known as one of the Sharks on ABC’s Shark Tank. As a successful entrepreneur, he is a well-known millionaire. I recently learned that he is also an advocate for financial education and his Cold Hard Truth books are worth a read for anyone who is trying to control their finances.
When people ask O'Leary how to get rich, he tells them three things: Don’t spend too much, save, and invest. So why don’t people do these things? Like with dieting and exercise, people don’t understand their emotional relationship with money.
3 Most Common Money Mistakes
According to O’Leary, there are three money mistakes that almost everyone makes at some time or another. Not addressing these can cause financial stress. For employees, that stress can lead to time missed from work, distractions, or work time being spent dealing with financial issues. Financially stressed employees are also less likely to contribute to a company’s sponsored retirement savings benefits, simply because they are living paycheck to paycheck.
Here are the mistakes that financially stressed employees are making — and how you might recognize them.
- Overspending. Some may not have a budget at all, others may have a budget but do not stick to it. As a result, credit card debt increases. This can cause stress on finances both in the short and long terms. Long term, the fine print and interest rate make it difficult to pay off. In the short term, when emergencies come up — like a frozen hot water tank — there is no available credit to fix it. When employees are asking for advances, that could be a sign of a deeper problem.
- Emotional spending. For some, shopping and spending makes them happy — temporarily. This is common when an employee is going through a breakup or other major life change. They may buy new wardrobes, cars, or other items to get a quick mood boost, which crashes down when the bills come due.
- Binge spending. The reason most diets fail is because they often deny dieters of the foods they like. The same can be said of budgets and spending. An employee may bag their lunch for weeks, only to spend their savings on a binge shopping trip over a weekend.
Financial education can help prevent these mistakes. Strong financial education services for employees need to cover things like budgeting, saving for an emergency fund, and investing for retirement. The key to successful financial education is to keep it continuous because the relationship people have with money changes with time.
If you're an employer, download the Moneywise Employee eGuide for information on how a financial education program for your employees should be designed and implemented.
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