The Impact of Financial Mistakes

Sometimes bad things happen to good people. Sometimes good people make bad decisions.

If you've made a bad decision about your finances, you're not alone.

According to a 2012 report published by the Consumer Federation of America, 67 percent of Americans who made between $30,000 and $100,000 a year said they had made a "really bad financial decision." Those decisions resulted in an average loss of $23,000.

That's a huge financial hit for a middle class family to take. But those in the middle aren't the only people who are susceptible to poor financial decisions.

The same report noted that more than 60 percent of Americans who made more than $100,000 a year admitted to making bad financial decisions that resulted in an average loss of more than $60,000.

Yes, it seems that significant financial mistakes can and are made by almost everyone—yet almost everyone thinks they have the knowledge, skill and experience it takes to properly manage their money.

Even though the majority of people admit to making bad financial decisions, 80 percent of the people in the study rate their ability to make good choices with their money as either "good" or "excellent."

Obviously that math doesn't add up. In fact, it often leads to problems compounding and becoming much, much worse.

Permanent reminders of poor decisions

Bad financial decisions are like bad tattoos—they can stay with you forever, and they can be painful to fix.

Many people who make mistakes with their money are only concerned about the short-term impact, which is typically measured in an immediate loss of money. But those who practice prosperity economics understand that the real pain associated with poor decisions is associated with long-term losses in the form of opportunity cost.

For example, making a bad decision at the age of 40 that results in an initial loss of $50,000 can wind up costing you more than $350,000 over the next 40 years because that is money that you could have invested. That investment, if it had earned a 5 percent annual return rate, would have paid out $351,999 by the time you turned 80.

That's quite the lost opportunity.

People who practice prosperity economics understand the long-term opportunity costs of their financial decisions and work to avoid making bad decisions.

They also understand some other principles of prosperity economics:

Early planning pays off

One of the goals of prosperity economics is to position people to live long, healthy, prosperous lives—and that starts with making smart decisions early on.

Bad decisions that are made early in life result in larger opportunity costs—and larger losses. That's why people who practice prosperity economics avoid the pitfalls of poor financial advice, which includes being encouraged to invest too aggressively too early, putting entirely too much money in stocks and not saving enough.

Over the course of a lifetime, these decisions can lead to incredible losses.

Building your net worth should never be ignored

People who practice prosperity economics focus entirely on building their net worth. They plan and save. They invest wisely. They put their money places where it's accessible in the case of an emergency but still delivering an impressive return, such as whole life insurance.

What they don't do is jeopardize their net worth by making poor financial decisions, spending irresponsibly, borrowing against their retirement accounts or making rash decisions during economic downturns. These decisions hurt them both in the short-term and in the long-run because of the tax penalties and opportunity costs.

Sometimes less is more

People who are smart with their money recognize that protecting what they currently have in the bank and avoiding losses is typically a better strategy than taking risks in an attempt to maximize returns. In other words, sometimes less is more.

Over the years, making safe, sustainable financial decisions typically delivers better results in any market condition. And given how volatile the markets can be, you don't want to be over-extended or invested in risky stocks when the economy takes a turn for the worse. While it might not be as exciting today, taking a slow-and-steady approach to managing your money will almost always deliver better returns in the long-run.

It's not always about the money

Sometimes the real cost of poor financial decisions isn't related to money at all. More often than not, it's related to the emotional toll.

Many people who are living with and feeling the pain of poor financial decisions suffer in silence. They feel regret and shame. They stress over their current financial situation and worry about their future. And they often make the problem worse by trying to deal with it themselves or ignoring it altogether.

These actions can lead to low self-esteem, depression, and even something called "financial infidelity," which occurs when people keep over-spending and hiding losses from their spouses or families. It can also lead to health problems.

The first step toward healing is to admit the mistakes that have been made. The second is to forgive yourself. Without admitting the mistake, you can never address it and fix it. If you can't forgive yourself, you might never be able to begin practicing prosperity economics and start securing a better, brighter future for yourself.

Viewing mistakes as opportunities to learn and grow can go a long way toward fixing the problems, minimizing the long-term damage, living an emotionally healthy life and avoiding future financial mistakes.

Moving in the right direction

Once you have come to terms with the fact that you've made a bad financial decision and forgiven yourself, it's time to move forward.

That means being honest about your situation, asking for advice and accepting help. A great way to move forward in the right direction is to find someone with expertise in the area of prosperity economics. Finding an experienced adviser can take some of the burden off of you and help guide your decisions.

But you also need to take responsibility for your finances. Educate yourself about best practices. Closely monitor and manage your money. And do everything you can to make smart financial decisions as you continue to move forward in the right direction.

Sent from the Land of Possibilities!