It’s going to happen! You’re going to screw up at least once. Money mistakes are a given, especially when you lack the knowledge of knowing what not to do and what tricks to avoid.
Ever heard of running in circles? These mistakes will put you on that hamster wheel and KEEP YOU THERE. Read on to find out the 10 most common financial mistakes that will surely destroy any money goals that you and/or your family has in place.
Not having a home for every dollar you make
If you don’t have a game plan for your money, your money will evaporate. Period. If you know where your money needs to be – it can’t get lost. Moreover, having a home for your money gives you an overarching view of what you have and don’t have. Allowing you to adjust your spending/saving accordingly.
You aren't saving for emergencies
Emergencies happen. And it very dangerous to not have a plan to fall back on. Allow your family some cushion in the event something does happen. If you have debts, build a minimum emergency fund of $1,000 first then work on beefing it up to 3-6 months’ worth of living expenses (ie. expenses you can’t get rid of, rent, food, utilities, etc.) after you’ve paid your debt off. Don’t allow not planning for financial emergencies to turn into a money mistake!
You only pay the minimum on your debts
Interest rates on your loans and credit cards are outrageous. The worst thing you can do is only pay the minimum balance.
Listen, I get it. Life is rough. Sometimes you just. don’t. have. the. cash. Sometimes you have to put that washer and dryer on a credit card because you just moved and money is already tight (true story). That’s okay. But it’s only okay if you are paying MORE than the minimum payment to avoid overpaying for your purchase by only paying the interest every month.
Pro tip: have a plan when you charge something to your credit card. If you have to charge a new washer and dryer to your card you better be backed by a detailed pay off plan.
Spending money you don't have on things you don't need
This goes hand and hand with the above point. IF you don’t need it, don’t buy it. And DEFINITELY don’t charge it to a credit card. *I got light-headed thinking about it.*
I am so guilty of this. (Look…I’m a work in progress) I brought the year in with 6 credit cards!!!! And I carried a balance on 3. So I’m writing this post out of pure experience. I had a game plan though, I was going to pay off and close all cards but 1. I had a goal, made a financial plan with my family, and we got to it.
The problem is: I wouldn’t have been in that position if I wasn’t spending money I didn’t have on things I didn’t need (minus the washer and dryer – needed that).
Pro tip: If you can’t buy it with cash TWICE without being hurting your finances in another category (excluding big huge purchases i.e. houses) then you probably can’t afford it.
You're not checking your statements faithfully
Make it a habit to check your bank statements every month. Things happen, it’s very important to keep up with what comes out of your account and what goes in. A restaurant can accidentally use your card to pay for someone else’s meal! This happened to us! But I caught it in time in order to get the amount refunded back and make things right with the restaurant.
That’s just an example and there are many more situations where your card may be wrongfully charged but if you are on top of your statements – you’ll be able to spot inconsistencies and rectify!
Pro tip: keep all your receipts so that you have something to show if a charge was incorrect. (I should take my own advice – I’m terrible at getting and keeping receipts.
You're not investing
This is like THE biggest money mistake. Invest your money as best and as much as you can. I use Robinhood. Robinhood is an online (U.S. based) investment company utilizing a mobile app and a website. They offer people the ability to invest in stocks, ETFs, and options through Robinhood Financials and you can even invest in Cryptocurrency if that’s your thing!
Another great opportunity to invest money is to use an investment app called Acorns that allows you to invest in fractional shares using the round-up method.
That was a mouthful, here’s the breakdown:
Fractional Shares: investing into a predetermined (by you) portfolio by investing in portions of an individual share
Round-Up Method: After making a purchase Acorns rounds-up to the nearest dollars and uses that amount to invest.
You don't pay attention to your credit score
Your credit score is huge if you want to be financially stable. Please do not neglect the numbers. Because your credit is part of your financial power consider using a free credit checking website like Credit Karma to stay aware of where you stand. Credit Karma also gives you guidance on how to better the health of your score. I have been using this app for about 5 years now and I am very pleased with the insight it has given me.
Spending too much on housing
This one is a difficult one to avoid. Especially if you take into account your geographic location and the size of the home you need. And although this may be the case, don’t make the money mistake of spending more than 30% of your income on a home/apartment (before taxes).
Pro tip: include your necessity-based utilities with your rent to ensure you can afford the home you want. Necessity-based utilities would be gas, electric, water, sewer, trash, etc. Things that you need to survive. Things like cable, internet, landscaping, etc. can be disconnected in the event of a family financial crisis so do not include those.
Not saving for retirement
We both know you’re not working to work forever so why not put some money back for the old version of you? It’s a money mistake to rely on the government (Social Security Checks) or other people (ie. your children) to care for you in your retirement. Alleviate that worry and burden by saving anything towards your retirement.
Pro tip: they say saving 15% of your income is the goal but not everyone can handle that. I say save what you can and increase as time goes on. The compound interest will work either way!
Not saving for your child's college fund
Save. for. your. children. They need your help. The financial burden of college graduates is huge (I would know)! There are many different account types you can set up for your kiddo’s higher education. I suggest an investment account called a 529 Savings Plan. This is a tax-advantaged investment opportunity that is designed for saving for higher education only!
Pro tip: You can use this for your own higher education and if your child doesn’t end up going to college you can simply switch the beneficiary.
Pro pro tip: If you withdraw and use the investment money for non-educational purposes the account owners pay ordinary income taxes and a 10% additional tax penalty on earnings. Be careful!
Next steps to consider
Well, there they are. The 10 money mistakes that can (and WILL) destroy your financial goals.
It seems like we have to save more money than we have coming in. The best way to counteract that feeling is to handle your finances in bite-sized pieces. Because being overwhelmed is just as good as not doing anything at all. You lose sight of the end game when you are overwhelmed. Take your time.
What are you doing to keep your financial goals in sight?
I am looking to grow my readership. Can you help me by sharing this blog post?