In the previous article, we looked at how so many people are shooting themselves in the foot in their effort to build net worth or equity by not controlling losses of money. In many cases, people (and organizations) are letting hundreds or even thousands of dollars slip out of their fingers each month. Doing so has a significant negative impact on your immediate and long-term financial position.
Now let’s have a closer look at some of the typical ways money can be lost.
Loss of money – that is, money or value leaving your control and resulting in a financial disadvantage to you – can happen in various ways, such as:
- Carelessness, as in the money fell out of your pocket, you misplaced it, the dog ate it, etc.
- Theft, including everything from burglary to scams.
- Unfavorable investments. Not all investments necessarily turn out to produce the results desired by investors.
- Unfavorable purchasing methods like not finding the best price or not negotiating the best deal.
- Paying excessive interest on debts. If the money you’re borrowing is costing more than what it’s earning you, then it’s excessive interest. Lots of people think they’re managing their finances shrewdly by keeping mortgages as long as possible without critically analyzing how much money they’re actually losing to interest payments over the life of their loan.
- Paying more taxes than legally required. This includes not taking advantage of all the legal and ethical deductions that may be available to you, and having too much tax withheld from each paycheck. Taxpayers who receive a refund from the government at the end of a year have been essentially donating their money to the government. The government has been using the money interest-free for all those months that it could have instead been in the taxpayer’s bank account.
- Inflation, described as the rise in prices of goods and services over a period of time, means that it results in money losing its value or purchasing power.
- Loans you make that borrowers don’t repay.
- Wasting your resources or possessions, including everything from money and time, to materials. Waste happens when the full or optimum benefit isn’t obtained. One example is allowing money to sit idle instead of being used for a beneficial financial purpose like earning or cancelling interest. Another example might be having insufficient insulation in a building resulting in excessive heating or cooling costs.
As you can see, losing money is easy to do, either intentionally or unintentionally. The amounts you may be losing unnecessarily can be enormous and can significantly hamper the process of wealth creation. Other articles on this site look at these problem areas in greater detail, and how to solve them.
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