Spot the errors?

It's no secret that many of our biggest mistakes in life happen when we put too much emotion behind our decisions. Both of my friends, bless them dearly, let their frustrations and wishful thinking dictate their choices. If they stepped back to evaluate their respective situations, they might have come to different conclusions - and results.

It's not that I never committed these kinds of errors. But in a world dominated by the desire to get rich quick - and that means at a fever pitch in Hong Kong, I dare say - it is worth remembering some of the most common financial mistakes to avoid.

Quitting before it's time

The desire to quit for many people is quite strong. If you were to take a quick survey of your office, you'd find that at least a third, and up to a half, of your colleagues do not like their jobs.

When in an unhappy place, everything else looks rosy. Some people simply stay on because they do not know what else to do. Others go the opposite direction, impulsively quitting to pursue dreams.

Both are mistakes. The only way to overcome this situation is to plan for your next move, which may take years. You need to calculate all the hidden costs of quitting, including paying for your own insurance, the loss of retirement benefits, the costs of your own business travel and so on. I am all for pursuing one's dream but only when founded on a sound financial plan.

Paying money for a service upfront

You will have heard the old adage: 'You get what you pay for'. But at times, you ought to get more by not paying at all. At least at first.

I was not surprised to learn my friend received a glowing review from the book agent she had paid to read her material, but thus far, she has not received a single plan of action to sell her book.

All service should be paid for afterwards and any requirement to pay a deposit upfront, or a 'fee' to initiate service, is money lost.

Going with the tide

This is particularly relevant in Hong Kong, where pure sentiment can sometimes drive investors batty over one undeserving stock.

Any good money manager will tell you that the best time to get into the markets is when everyone is getting out.

Think of Warren Buffett. When everybody and their grandmother was jumping into tech stocks during the late 1990s, he stayed out. He said he simply did not understand these companies and stuck with the traditional industries he knew. Turned out, he was right.

But this is more than about investing in the equity markets. It is about being the contrarian in the marketplace.

One of my favourite stories is how dozens of investors laughed at Jeff Bezos, founder of Amazon.com, when he pitched the idea of selling books online.

They all said he was crazy and quickly showed him the door. If you don't know how the story ends, you can read it at Amazon.com.

Paying unnecessary fees or interest

It is incredible how many people rack up costs by paying unnecessary fees, whether to banks, credit card issuers or the Inland Revenue Department. Keep mindful of your payment deadlines and never rack up interest-bearing debt unless you are in an emergency situations. And once you receive funds, pay them off. It is easier to look towards a positive financial future when you're not paying someone else off every month.

Investing more than 10

per cent in any one stock

The days when you could put all your retirement savings in your company's stock, and wait for the returns to accumulate are long over.

There are too many investment options out there and risk has risen considerably - along with appetite for risk.

What that means is the best way to protect yourself is to diversify your portfolio. That means ensuring you are not exposed to any one particular investment, no matter how favourable you may be to it.

I employ a rule of thumb that works for many financial planners - never put more than 10 per cent of your money in any one stock.

Sometimes it does pay to spread yourself a bit thin.

Dozens of investors laughed at Jeff Bezos when he pitched the idea of selling books online. They all said he was crazy