7 Money Mistakes
7 Money Mistakes Some People Make & How to Avoid Them
If you make huge money mistakes early on in your life, it could have a negative effect on your future. This is why young people starting out in their career need to be very careful in making financial choices. Any of the 7 money mistakes listed here could easily develop into a habit that could have a lasting impact on your financial life.
There are many common money management mistakes that we could list in this article, but we’ve selected just 7 we consider to be the most common ones. These money mistakes don’t just apply to young people starting out, but people up into their 40’s and 50’s. Anyone looking for advice can most certainly learn from these mistakes and how to avoid them.
1. Allowing credit card debt to pile up
This is number one on my list of 7 money mistakes that will mess up your life for many years to come. The pandemic created one exception whereby individuals lost their job and had families to feed. Benefits were either slow, or not at all, and they had no choice but to charge purchases to support their families.
But, many others, usually due to impulse buying, have racked up a lot of credit card debt. This not only applies to young people but older individuals as well. It’s easy to accumulate credit card debt if you’re not extremely careful, and then it’s out of control. You should only charge what you can afford to pay in full every month, and then, within your budget.
Here’s a link to a credit card payoff calculator that can help you establish a plan to pay it off.
2. A need to prioritize savings & ignoring it
Creating a savings account for an emergency fund is a must for every budget. Having an emergency is not a question of if you will, but when you will. If you can set aside money for these unforeseen things that will occur, you’ll save yourself a lot of stress down the road. Without an emergency fund, you will have to charge the amount to your credit card, if it isn’t maxed out.
Hopefully you’ve already learned how to set up a budget, and have a budget item for this fund. If not, start one as small as you must, and increase it as you go along. If you have spare money at the end of the month, put it into the emergency fund. Most employers will allow you to set up an automatic withdrawal from your pay for savings.
3. Using a debit card rather than using a credit card responsibly
A debit card is directly linked to your bank account which makes it fairly easy to use, but usually it’s not a good option. With the right credit card, you will qualify for various rewards. Using a debit card won’t improve your credit score.
If you have fraud or unauthorized charges on a debit card, they’re time consuming to dispute. You also don’t get some benefits such as return protection or extended warranty coverage on most debit cards.
You should review the available credit cards and apply for the one with the best rewards. Just be sure to use the card in a responsible manner so you can build your credit, earn more rewards, and get extra perks. Plus, you’ll have built in free protection from credit card fraud.
There’s a fairly recent story about a lady who used her debit card to buy a latte. Little did she realize that the clerk charged her $5,700 by accident. The nightmare that followed is enough to stop using a debit card forever.
4. Not using a budget
Many individuals either hate or are scared of the “B” word…budget. Some think it cramps your lifestyle, doesn’t allow you to buy anything that’s not budgeted, or simply ties your hands behind your back. Too many people have no idea what they spend their money on, and think, maybe one day in the future, I’ll do a budget. This is the second most important of the 7 money mistakes.
The wise thing to do, however, is to create a budget when you’re young and avoid wild credit card spending. That type of behavior will indeed tie your hands behind your back, and for a long time, as you struggle to make ends meet. You need to take control of your spending and do all you can to eliminate debt.
5. Bowing to peer pressure for expensive activities
If you’re trying to reduce debt and live within a budget, don’t be embarrassed to tell your friends what you’re trying to accomplish. They may be able to afford expensive activities, or maybe they’re charging everything, but that doesn’t mean you can.
Rather than give in to peer pressure, you might suggest some other activities that are low cost where all of your friends can participate. The goal should be to have fun without going into more debt, or spending more than you can afford.
6. Retirement money mistakes by waiting too long to save for retirement
My parents and even some of my friends told me that I should start early to save for my retirement. I was young and felt like I had all the time in the world to put some money away. I now realize how wrong I was. By starting earlier and with compounding, I could have had tens of thousands more invested. Third most important of the 7 money mistakes.
7. Living from paycheck to paycheck
Sound familiar? Are you in this situation? A sobering fact was discovered in a recent survey. About 40% of Americans who make at least $100,000 annually are living paycheck to paycheck. It also showed that about 54% of the USA population ( 125 million US adults) are in this category with little or no savings.
This is generally the result of overspending and people in this position need every dollar they earn just to make ends meet. There are exceptions, I know, where some have very serious problems beyond their control.
When an economic recession rears it’s ugly head, and it has as of this date, people without savings are going to have very few options available. A lot of financial planners will advise you to save enough money to cover your expenses for three months, but that is not enough now.
With the effects of the pandemic and incompetent leadership in Washington, you need to keep 6 to 12 months of cash available. I know this is a lot of money, but this recession is going to get a lot worse.
These 7 money mistakes can create severe financial havoc in your lives, and the sooner you correct them, the better off you’ll be. Most of these common money management mistakes, if corrected while you’re younger, can result in a much brighter financial future.