Everyone struggles at times with personal finance. It’s inevitable that, despite your best intentions, something goes wrong with your personal finances. The hope is that when you make a money mistake, it is something that is easily correctable.
Sometimes a mistake is just that – a mistake. You missed a payment deadline. You forgot to sign a check before mailing it. But other times money management mistakes can set you back months or even years with your financial goals. Those are the mistakes you need to work hard to avoid. And the best way to avoid making a big mistake is to be on the lookout for the most common money mistakes people make.
Buying a New Car
New cars are pretty. They smell nice. But they have very large payments you should probably avoid unless you actually need to buy a car right away. If you have a used car that is still running well and getting you down the road safely, there is no reason to buy a new car.
There will always be a new car special. There will always been special financing offers. Don’t fall for the marketing gimmick or try to justify spending tens of thousands of dollars on a new car just because you don’t like the rust spots or the cloudy headlights on your current one. The longer you can keep a car that is paid off, the more money you have to put in your pocket for savings or to pay off other things.
Stretching Your Housing Payment
Getting a new place is exciting. You want to buy yourself the very best and it’s easy to overbuy. You
might not need all of that lovely extra space right now, but you will eventually, right? You might as well
buy at the top of your budget now and then you can enjoy that new place much longer!
Stretching your budget to buy a new house or even stretching to rent a nicer apartment is a recipe for
disaster, financially speaking. You will be what is termed “house poor” if all of your money is going to
housing payments rather than toward savings, debt payments or even just basic living expenses.
What is the point of stretching your finances to pay for your new, beautiful home if you can’t ever do
anything outside of that house? Spending too much on a home often means that you wind up in debt to
buy furniture for the large house, appliances for the house and even to cover other bills for the house
you didn’t count on. Ever tried heating a large house in the winter? Or cooling it in the summer? It costs
more than you’d think.
Watching Your Savings
There is an expression that a “watched pot never boils.” Leaving your savings where you can see them
easily, every day, can be a problem. Some people have a bad habit of “borrowing” from their savings
account. Or they might use it for wants rather than needs.
Every time you pull money out of your savings account, you are harming your future self. Money that is
left in a savings account can grow and earn tremendous returns if invested wisely. Money that is
constantly being pulled out of a savings account will never go anywhere.
Pay yourself first by sending a certain amount of money into savings immediately after your paycheck
comes in. Then, budget out the rest of the money to cover what needs to be covered. Stash those
savings far away from your own eyes and check on them only periodically to be sure nothing has gone
Extending Your Credit
You probably know that you should never buy anything with a credit card that you can’t pay for in cash.
Credit cards are good for emergencies and for accumulating points toward treats like airline miles or gift
cards. If you can manage your credit card debt and pay them off after charging something, you can enjoy
the benefits of your cards.
If you rationalize that you will easily pay the big purchase off down the road and extend your credit
cards to cover your desire to have it now, you are not using your cards wisely. Credit card mistakes are
one of the most expensive mistakes you can make because the mistake keeps compounding.
Every month you are paying more for the mistakes you made previously, and you may be at risk of
developing a bad credit score. It’s only possible to break the cycle by paying off the cards as soon as
possible. Personal loans might help you clear the debt, set up regular payments and then get yourself
caught back up. Just be sure you don’t start the cycle all over again.
Wearing Your Paycheck
You are doing well and you want others to know it. You want to have nice things. That’s reasonable.
Understandable. But expensive at the same time. If you are using your paycheck to pay for nice things all
of the time, how are you going to build up savings to enjoy more nice things after you retire?
Spending all of your money to show others how much money you make can feel good in the moment,
but it’s a huge money mistake and can be a hard habit to break. Buying new things releases endorphins
and actually makes us feel good. Feeling like others are envious of your things feels good also.
To break this bad money habit you will need a new paradigm shift. Delay the satisfaction and let your
friends be envious when you retire at 50. Or when you have your house completely paid off by 45. Don’t
waste your chance for future success by blowing your paycheck on designer duds now.