When it comes to money, most of us probably think we are doing pretty well. I mean, we have a budget, we can afford the things we need and sometimes have extra money to spend when we want to. However, could you do better? I mean, in reality, can’t we all?
If you take a look at your spending, are you being as smart as possible? It may seem like it at first glance, but if you really sit down and think about it, you may be making money mistakes with your finances and not even realize it!
This can mean missed opportunities to save or even overspending. Check out these money mistakes you may be making – and what you can do to make it right!
COMMON MONEY MISTAKES TO AVOID
1. Not having a budget
The number one money mistake people make is not having a budget. A budget is not a bad thing. In fact, is the key to properly managing your money. A budget puts financial control back in your life. Otherwise, your money just goes where it wants, and you have no control over your finances.
I know it can seem scary to sit down and make a budget, but it really is not that bad. In fact, once you do it and start to follow one, you will realize how much better you feel about your money.
Read More: How to Create a Budget That Works
2. Not Being Involved in Your Finances
If you are in a relationship where you both contribute financially (married or otherwise), are you both involved in paying the bills? In most cases, it seems that just one person takes care of this.
It could be the person who is considered your head of household. There are instances where it is the person who is better at handling money (or maybe enjoys it). It is not OK for just one person to be in charge of paying the bills and saving. You both need to be involved.
What you need to do is sit down together and start with your budget (see #1). Fill it out together, so you both see how you will spend your money. You can both contribute to how you will save, what you will budget for dining out or other items you want to spend your money on. You both have an equal voice. You both are in control of your money.
Full communication goes beyond your budget. You need to look at your investments, credit cards, life insurance – anything with a financial tie. Ensure you both know where to access account information as well as all password and log in details.
Read More: How to Talk to Your Partner About Money
3. Not Saving for Retirement
If you have a young family, your focus is more than likely on your children. You are concerned with making sure they have the things they need, and rightfully so. You may also be only looking forward as far as saving for college for them. What about you though? How will you support yourself when the children are no longer living at home?
Too many parents focus more on college than retirement. Sure, we’d love to help our children financially with school, but if your children are intelligent, they may get scholarships. They can take out loans. They can save to invest in their education. However, who is going to help give you money when you retire?
If you plan on relying on social security to cover your expenses when you retire, you are going to be in for a shock. They will not give you enough money to live. Period. It is up to you to take the steps now to ensure that you are looking ahead to take care of yourself and your spouse or partner for the future.
The simplest way to do this is to look to your employer. Do they have a 401(k) plan? Do they have a matching program? If they do, sign up right now. You usually do not notice that much of a difference in your paycheck. Not only that but if your employer matches what you contribute, that is FREE MONEY for your retirement plan!
Start saving right now and look ahead towards covering yourself for those golden years.
4. Not Using Credit Wisely
I love to shop. I really do. However, rarely use credit. Even if I do, I must have the funds in my bank account to cover the cost completely. If I don’t have cash, then that means I don’t get to purchase it.
Many people are wise when it comes to using credit cards. They use them and turn around and pay it off entirely every single month. If you are one of these people, the good for you!
The problem is when you fall into the traps. The low introductory rate of 1% or the store offering a discount of 20% if you open a store charge. While you may say that you don’t do that and will pay it off, that is not the case for most people.
The majority of credit card users allow the balance to carry forward from month to month. It is much more appealing to send in that $15 payment than it is the total balance due of $400. I mean, you get to keep $385 in YOUR pocket – right? WRONG!
Take a look at this example:
You open a store card to save 20% off of your purchase that day and end up spending $400. You saved a bunch of money already, and so it was smart!
The bill comes and you open it. You see that the interest rate is 18.9% and that the minimum payment is only $16. Rather than hand over the entire $400 out of your account, you think – “Heck! I’ll just send in that minimum and keep that $384 in my pocket to spend on something else!”
If you continue to do this, it will take you nearly 3 years (34 months) to pay off this balance. THREE YEARS! Not only that, but you will accumulate more than $120 in interest making your $400 purchase end up costing more than $520!!!
Just pass on those credit card offers and stick with cash or your debit card and you won’t fall into these even money sucking traps!
5. Listening to Your Bank or Lender
If you want a new home, car, or anything that may require a loan, you will go to the bank. There, you will complete an application for pre-approval and find out that they tell you that you can afford a $300,000 home with an interest rate of 3.76%. Your monthly payment will be $1,391.05.
While that looks like it will work according to the numbers, you know that will really stretch things thinly. However, a bigger house with the large master tub and large backyard would be your dream house! The neighborhood is upscale, and it is everything you want. However, is it what you can really afford?
Perhaps you really should spend only $900 a month instead. That makes your mortgage no more than $200,000. That is $100,00 LESS than what the bank says you can afford.
By spending less, you have freed up money to allow you to actually live to love life – not life to pay for a home. If you find yourself in this situation, it might be wise to consider downsizing or maybe trying to refinance at a lower rate to reduce the amount you are paying each month on your mortgage.
6. Shopping on Impulse
It is easy for us to overspend on things such as home repairs, clothing, gifts and more. The reason is that emotion normally drives us. If the refrigerator is no longer working, we worry and just know we have to get it fixed as quickly as possible. That may result in paying more than you should.
Before you make any more significant purchases, take time to do your research. In the instance of an appliance repair, make some calls to find out the rates of various companies. Research to find out who does good work. Then, write down that name and number so that when you need someone, you will know who you should call and see that they will not only do the work to your expectations but also at a price you are willing to pay.
You should also look around for deals and the best prices on other items such as clothes and gifts. By taking a few extra minutes to do some research online, you might find a better price at another store, saving you time!
7. Not Teaching Your Children about Money
This money mistake surprises many people. They look only at themselves when looking at changes they need to make. They often don’t think about their kids.
Your child is a sponge. He or she takes in everything they witness and hear. They may learn great things from you. However, they may also pick up your bad habits. You want your kids to be smart in all areas of their life as they get older. Finances are one of them.
Start educating them at a young age. For example, when my kids go to the store, they know that we can’t just buy anything. We talk about our budget with them and tell them that we have only a certain amount of money to spend on food. They know we must first pay for our needs and then we can buy our wants.
Not only should you teach your child about spending, but they need to understand financial responsibility. It is important that you start young with your children so that they understand the concept of how to manage their own money.
Teach them about giving, saving and spending. By starting young, your child will learn no other way of dealing with money than the way you teach them. Doing so sets them on the path of financial independence.
8. Not planning for the unexpected
Let’s face it. None of us ever plans on losing a spouse, divorce or other financial hardships. But, the reality is that it can happen. It is important to plan now so that you are ready should that happen.
You need to sit down with your spouse or partner and have a candid discussion. As yourselves these questions:
- How will we pay our bills if one (or both of us) lose our jobs?
- How much money will my spouse need should I pass away?
- How will we cover funeral and/or medical expenses?
- What happens if I become disabled and can no longer work?
The first step is to get your emergency fund in place. It should cover upwards of 6 – 12 months of your expenses. Look at your budget to determine what you would need to change should your income decrease (i.e. things such as entertainment and dining out may have to be put on the back burner).
When considering how much you will need to live on should you lose your job, don’t forget additional expenses. For instance, if your employer covers health insurance, that burden will be 100% on your shoulders if you are not employed.
Once you know how much you need for your emergency fund do all you can to save that money. That way, you are ready, should you need the cash.
Finally, get everything else in place. Make sure you have a large enough insurance policy for your family’s needs. Review your will (or get one). Everything you do now will help your family in the future, should the need arise.
Read More: How to Really Plan for the Unexpected
9. Not Having a Plan to Get out of Debt
There is no such thing as “good debt.” The best debt of all is no debt. You may think that you only owe $800 in credit cards, but that is $800 too much!
You should take steps to get out of debt right away. There are some simple things to keep in mind with any debt plan:
- Make sure you do not spend more than you earn (that means do not use credit cards or loans to overspend).
- Figure out your monthly payments to get the debts paid down.
- Set a deadline for getting out of debt.
- Put it ALL in writing and stick to it!
10. Ignoring Them Completely
It is a fact that ignoring problems never makes them go away. They are still there. The same holds true for your finances. If you are ignoring them, things will not improve.
If you find you are in over your head, check with your bank. For example, CommunityAmerica offers free assistance to anyone who wants to get out of debt. They even have financial planners available to assist you. You never know what services are out there unless you ask.
11. Understanding the Importance of Your Credit Score
Your credit score and credit report are a snapshot of how you have handled your credit over time. They can single-handedly determine your eligibility for a mortgage or auto loan.
It is important that you keep these things in mind. If you have made mistakes in the past, it is not too late to fix them and get your credit history back on track. A few things to keep in mind:
- Never charge more than 30% of your total available credit
- Pay your balances in full, and on time, each month
- Review your credit report at least annually
- Dispute any mistakes you find on your credit report
Taking steps now to ensure your credit score and report look the way you want will ensure you are ready at the time you need to use them.
12. Shopping when you are hungry
How many times has this happened to you? You get home from work and there is nothing to eat so off to the store you go!! When you look at your purchases when you return home, you find things you normally would not buy. The reason? You shopped with your stomach rather your budget.
If you find you are hungry, stop and eat something before you go to the store. It could be an apple, banana or even a slice of cheese. The idea is to remove the hunger so you aren’t tempted to buy things you don’t need.
Even better, plan ahead by figuring out your meals and shopping list before you ever go to the store. Your plan ensures you get the things you need and you won’t be tempted to rush out and let your hunger guide your purchases.
13. You don’t allow for fun spending
All work and no play makes Jack a dull boy, right? The same is true for you! One of the mistake people make with money is not allowing themselves to spend it on the fun things.
You work hard and while you need to be responsible and pay your bills timely, you also need to let yourself enjoy your money once in a while. It doesn’t have to be a big purchase. Even a trip to your favorite coffee shop can be a treat. Budget the fun money in so you aren’t left feeling deprived.
It is not how much you make that matters. It is what you do with it. Making wise financial decisions can keep you from throwing money away and helps you gain more control, leading to a happier life.