“What does it cost you to be alive?” If you don’t know the answer, you could be headed for a financial trainwreck. If not now, probably soon, says Kevin O’Leary.
When it comes to his own money, the shrewd, sharp-tongued Shark Tank star has long managed it meticulously, even when he was a shy kid growing up in Montreal, Canada. The young “Mr. Wonderful,” now a silver-haired 61, carefully scrimped and saved a percentage of every dollar he accrued, whether earned or gifted. And the multi-millionaire mutual funds magnate still does.
We asked the frugal finance whiz what he thinks the worst money mistakes people make are and how to best avoid them. Here’s what he said:
The mistake: Spending on 'crap' clothing you won’t wear.
“Most people buy more crap than they use. This includes men and women alike, especially when it comes to clothes. They love the feeling of clothing shopping, but the truth is, if you actually look at your closet, you probably wear the same 20 percent 80 percent of the time, and the rest of the stuff you bought is wasted."
The solution: Invest in high-quality clothes and wear them out.
“If you’re going to buy clothing or fashion accessories, make it something really good that’s going to be timeless, that you’re going to spend a lot of money on and spend a lot of time thinking about and that you’re actually going to use. Save your money and put it toward quality items and be very selective. It’ll pay off in the long run. I wear the same suit every day. I have 20 of them, so I don’t have to worry about my style anymore. I travel with four at a time and I burn them out, then throw them out or give them to charity.”
The mistake: Not knowing your monthly nut.
“What I find so remarkable, and this includes very wealthy people I know, is nobody knows what they’re monthly nut is. Whether you’re single, married, a single parent or otherwise, most people don’t know what it costs them to live every 30 days, and that’s living on the edge.”
The solution: Calculate your cost of living and budgeting accordingly.
“Write down everything. All of your habits of spending. All of your income. All of the extra ways you make money. Capture it, down to the penny, over a 90-day period. Do it with pen and paper. You don’t even need a computer for this. Then do what needs doing -- budget accordingly and stick to it.”
The mistake: Spending more than you make.
“Not knowing what’s coming in and what’s going out puts you at risk, in a state of never getting ahead. Most often, you’ll find you’re spending more than what you’re bringing in.”
The solution: Tighten your belt and fast.
“It’s simple and requires discipline: Spend less and save more. Adjust your lifestyle because overspending manifests itself usually in credit card debt, which is so expensive that it buries you.”
The mistake: Racking up credit card debt.
“A credit card is a horrible thing. Under no circumstances should you have one, let alone more than one, not unless you can fully pay them off each and every month. Even then I’d avoid them.”
The solution: Ditch those bad cards for good.
“Pay off your credit cards, then cut them up. You won’t regret it. It’s the best thing you can do to put yourself in a better financial position right now.”
To glean more of O’Leary's advice, check out Shark Tank’s Season Eight premiere on your local ABC station. It airs on Sept. 23 at 9 p.m. ET.