Managing personal finances is very simple: spend less than you earn over a long period of time. Then, if this is the heart of your financial plan, it’s likely that you’ll be prosperous. That said, there is one other thing you’ll need to do – you must avoid the financial pitfalls that can significantly disrupt your finances.Micron Associates call these the worst money moves in which you can make. 1. Over-spending. If your outflow exceeds your income, then your upkeep will be your downfall. The first step to gaining wealth is spending less than you earn — it’s vital to making any financial progress. So when you over-spend, you’re doing the most damage possible to your finances.Here’s what Stop Acting Rich says about the issue: Most people will never earn $10 million in their lifetime, let alone in any single year. In fact, most households (97%) are unlikely to ever earn even $200,000 or more annually. So what if you are unlikely to become rich by generating an extraordinarily high realized income? The only way you will become rich is by being like those millionaires at the other end of the continuum: by living well below your means, by planning, saving, and investing.
There are two types of over-spending that can ruin your finances: 1.Over-spending on the little things. These are the small amounts that seep out of your pockets here and there and eventually become large. 2.Over-spending on the big things. Homes, cars, boats, cottages, and so on. The vast majority of cases (probably 95% or more), it’s not the amount these people make – but the amount that they spend that’s the problem. (In some cases it’s true that people simply don’t make enough money to save, invest, etc. As such, they need to concentrate on increasing their income as much as they need to control over-spending.)