Mistakes. They are next to impossible to avoid. This can be a good thing, however, it helps you grow as a person, and hopefully, you learn from these mistakes early before it becomes too costly.
Here are some common money mistakes that can derail your financial future.
This one is pretty straight-forward, but when I say spending, I mean anything beyond your essentials. These include housing, food, utilities, transportation, debt, saving, phone, and maybe Netflix or some other form of entertainment.
Don’t get me wrong, some spending above these items is fine. It’s important to treat yourself, here and there, so you are motivated to keep working towards your goals.
But this spending should not be so much that it takes precedence over your savings, or worse, forces you to pay for things with a credit card. That is a very slippery slope!
Buying a new car
Stats show that a new car loses 10% of its value within the first month and 20% within the first year (Source). You are much better off buying a lightly-used vehicle.
Ideally, you’d purchase a vehicle that has a well-recorded history of maintenance. Something that shows the car was well-taken care of and not beaten to hell.
You could pay half as much as you would a new car, and you just might get just as much out of it.
Buying essentials with credit cards
I touched on this a little at the beginning, but if you get to the point where you are buying things you need with borrowed money, you’re in trouble.
At this point, you need to evaluate your spending and find out where all of your money is going. You actually want to evaluate your spending regularly so it doesn’t get this bad.
After you figure out where the leak is, reduce your spending in that area, or areas, and pay down the debt you’ve accrued on your credit cards.
Investing in the stock market, historically shows how effective it can be at building wealth. It’s also one of the only investments proven to outpace inflation. (Tweet this)
If you are putting all of your hard-earned money into a savings account and aren’t investing it, it’s costing you.
Inflation will continue to increase the cost of goods over time. If your savings isn’t rising, it’s effectively losing value compared to the cost of goods.
Investing doesn’t have to be difficult and it doesn’t have to be expensive.
Paying off debt before establishing an emergency fund
You should establish an emergency fund before you start paying down your debts. Yes, it’s important to get that debt paid down as soon as possible to save yourself interest payments.
However, that does you no good if an emergency pops up and you have to pay for it with a credit card because you don’t have money set aside for it.
That sets you back even further. Put away at least $1,000 and then start paying down debt.
Buying too much house
The common term for this is “house poor.” People who do this end up paying so much for their mortgage and the costs associated with maintaining the house that they have very little left over for saving for short-term goals and retirement.
That’s the reason for the term, house poor. Most or all of their net worth is the equity/value of the house.
Don’t do this. The standard recommendation is to buy a home where your monthly expenses for that home are equal to or less than ⅓ of your monthly take-home pay.
This would leave ⅓ for other necessary expenses, and the last third of paying down debt and saving.
Making it all about money
There’s no doubt about it, money is important. It pays for shelter, food, clothes, and other items required for a healthy standard of living, but it should not be the focal point of your life.
Don’t work so hard for your money that you forget to appreciate what it can provide. Take the time to enjoy the fruits of your labor. (Tweet this)
Though mistakes are vital to learning and growing as an individual, some can really set you back.
If you want to learn more or have any questions about what's written, please contact me using the email at the bottom of the page.