Financial setbacks are part of every self-made millionaire’s journey, but fortunately so is recovery. As any successful entrepreneur will tell you, making financial mistakes is par for the course. But the lessons learned are invaluable.
Discover: 12 Ways to Get Ahead of the 99% of People in Financial Terms According to ChatGPT
Learn more: 7 Reasons Why You Should Consider Hiring a Financial Advisor, Even If You’re Not Rich
GOBankingRates spoke to two self-made millionaires—Jeff Mains, Founder of Champion Leadership Group, and Tommy Mello, CEO and Founder of A1 Garage Door Service—to discuss the biggest financial mistakes they made and what they learned as a result.
Rich people know the best money secrets. Learn to copy them.
Being overconfident and taking big risks
“As I reflect on my journey as a self-made millionaire, one significant financial mistake that stands out—and subsequently offers a profound lesson—was my early foray into leveraged investing,” Mains said.
“Early in my career, I was overconfident in a booming market and took on substantial financial risks by using borrowed money to amplify potential returns.
“The strategy paid off initially, allowing me to make spectacular short-term gains, but it was not sustainable. The market eventually corrected and I suffered serious losses that wiped out my gains and put me in debt. This experience humbled me and taught me the crucial importance of risk management and the need to balance ambition with prudence.”
He noted that the lure of quick profits may be tempting, but the potential for loss is equally significant.
“I learned to appreciate the power of compound interest and the stability of more conservative investment strategies that consistently generate wealth.
“This shift in focus helped me rebuild and grow my financial foundation more securely, emphasizing diversified investments and avoiding reliance on borrowed money.”
Check out: 6 Things the Middle Class Should Sell to Increase Their Savings
The lesson learned
“The lesson here is invaluable. While leverage can accelerate your financial growth, it can also lead to a downfall if not managed with a clear understanding of the risks involved. For those looking to build lasting wealth, especially young entrepreneurs, I recommend focusing on sustainable growth strategies that do not overextend financial exposure,” he said.
“This approach ensures that you are prepared for the opportunities and potential downturns that are integral to any financial journey.”
Placing too much trust in a single supplier
“When (my company) was still in its nascent stages, I made the mistake of relying too much on a single supplier,” Mello said.
“This supplier was responsible for a significant portion of our inventory: from springs and cables to openers and remote controls. We had negotiated what seemed like a great deal with them, and for a while, everything went well.
“However, this dependence on a single supplier became a critical vulnerability for the business.”
Mello explained that the first signs of trouble appeared when the supplier began to face its own financial difficulties.
“They started delaying shipments and product quality began to decline. I ignored the warning signs for too long, hoping things would improve. I focused on maintaining the relationship rather than considering the potential risk to my business.
“Eventually, the supplier went bankrupt, leaving us high and dry with thousands of dollars tied up in undelivered product and unusable inventory,” he said.
“This mistake cost us a significant amount of money. Nearly $250,000 in lost inventory and lost opportunities.
“Our operations were disrupted and this severely impacted our cash flow. We were forced to seek out new suppliers at short notice, often paying premium prices to keep our services running.”
The lesson learned
“This experience taught me a valuable lesson about the importance of diversification and risk management,” Mello said.
“This is what I learned from this costly mistake: diversify suppliers. Never depend on a single supplier for the critical components of your business. Always have multiple sources for your key products to mitigate risks.”
He also stressed the importance of risk assessment.
“Periodically assess the financial health and reliability of your suppliers. Be proactive in identifying potential problems before they become critical issues.”
In addition, he noted that cash flow management is crucial.
“Keep a buffer in your cash flow to handle unexpected disruptions. This ensures that you can weather difficult times without compromising the quality of your service.”
And above all, Mello advised focusing on building relationships.
“Develop strong relationships with multiple suppliers. This not only gives you options, but also greater bargaining power and security should a supplier fail.”
More GOBankingRates Content
This article originally appeared on GOBankingRates.com: I’m a Self-Made Millionaire: This Mistake Taught Me a Rewarding Financial Lesson
