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Making mistakes in life is part of the learning process (at least that is how I see it.) We all make mistakes, and while we try to learn from them and not repeat it, there are some mistakes that we keep repeating.
Mistakes with money are one such area that is difficult for a lot of folks (yes, for me too!). It is particularly challenging during your youth.
Speaking from personal experience and with friends and others who have shared their stories, I have compiled a list of COMMON mistakes we make with money.
I am sure you can relate with some of the money mistakes listed below:
#11 Spending On Stuff You Don’t Need
This one is pretty simple, yet most of us keep repeating this mistake. As you know, there is a difference between “need” and “want”
Do not spend money on buying stuff (personal or household) that you want it but don’t need it.
A classic example would be a pair of jeans. I’ve heard people have 10-15 sometimes 20 pairs of jeans – AND they still want to buy more!
Please don’t get me wrong – I am not suggesting, not to buy clothes. All I am saying is if you don’t need that 11th or 16th pair of jeans, don’t buy and save that money.
Check out one of my other posts with 25+ creative ways to save money that will help you generate extra cash every month.
#10 Using Too Much Credit
These days, the credit card issuing companies have less stringent rules giving the steep competition.
What does it mean for you and me as a consumer?
It means that we can get a higher credit line than what we are either looking for or can afford to spend. So, it’s a double-edged sword in that we get to use more credit but also have to pay the balance at the month-end.
A lot of credit cards have Travel, Gas, Shopping benefits linked to the reward points you accumulate. This means you can either get cash back or redeem the points to pay off your monthly balance.
There are a ton of benefits that come along with using a credit card, so be smart about using credit cards.
#9 Making Late Payments
It goes without saying, the higher your credit card usage, the higher your monthly balances you need to pay off.
If you are tracking your monthly usage and keeping it in line with your budget, kudos to you!
But, if not (and unfortunately, a lot of folks don’t track) you’ve got a problem! This is one of the common money mistakes to avoid.
If the monthly payoff balance is higher than what you can pay, by default you will have to wait until you have enough money to clear the balance.
The credit card company will add interest to your purchases (since you did not pay the balance when it was due) and now the payoff balance is higher.
And, this becomes a vicious cycle until you make full payment.
Instead, be meticulous about your credit card usage every month and don’t overspend. You’ll both enjoy the benefits and also build your credibility/credit score as time goes by.
#8 Relying On Parents To Fill Financial Gaps
This is a tough one and the one that doesn’t push us to think consciously and practically.
Because it’s family, we tend to bend and(or) break rules. You see, achieving financial independence requires both discipline and willingness to go through the tough times.
Given that most students today graduate with significant student loans, the added pressure to start their lives, manage expenses, rent, and save enough to buy a home is just overwhelming.
So, the more comfortable option is to reach out to parents for help when you are short of money.
This puts you at a huge disadvantage and deprives you of life lessons regarding personal finances.
When you are short of money, you choose to let go of something. You sacrifice some aspect of your lifestyle to make ends meet. This is key to your long term success with personal finance.
Do not rely on parents or close relatives or best friends for that matter to jump in every time and help you with your finances.
#7 Buying OR Leasing A Car You Don’t Need
Society, peer pressure, your parent’s lifestyle, and your friend’s net worth mean nothing if you are miserable and unhappy. Do not live someone else’s life if you can’t afford it – another common money mistakes to avoid!
Countless folks buy a fancy car (to either keep up with the Joneses or fit in) only to realize later that it was a mistake. They can’t afford the monthly payment, and it stretches them thin.
Even if you can afford, think twice about paying an extra $300-$500 per month for a fancier version. You can save or invest that money that can earn you good returns.
#6 Buying A House You Can’t Afford
Buying a house/condo is going to be the single most expensive purchase of your life.
It is going to be your primary home where you will create memories for a lifetime, party, have cookouts, celebrate Thanksgiving and Christmas and even raise a family.
So, you need to ensure that the house you buy is both affordable and manageable in the long run. The monthly mortgage payment should neither give you sleepless nights nor force you to work 3-4 jobs and be miserable.
Do not let outside opinions muddy your thought process and rationale. If you have not, check out this post on how to save 20% in down payment, so you don’t end up paying private mortgage insurance (PMI)
Remember, when you cannot make your monthly payments, the bank is going to come knocking on your doors, and you are the one in trouble (nobody else!)
Plan your finances and set aside a dollar amount for ongoing maintenances.
Keep it simple – if you can’t afford a home, wait until you can!
#5 Borrowing Money
You have to be careful about this one. On the one hand, you have money that can work for you, and on the other hand, you have family and relationships across multiple generations.
Remember, when you borrow money from someone in your family or close friends, your relationship is on the line (not just the money!)
The 2 most common reasons for folks to borrow money are; Weddings and Education.
The average wedding costs for an American wedding run somewhere in the range of $30,000 through $35,000. That’s equivalent to a student loan!
Everyone likes a wedding that has all the bells & whistles, but when it comes to costs, people either exhaust all their savings and(or) borrow more money. This stretches them thin and ultimately the relationship is at risk.
So, is there a better option?
YES! Just stay within your budget or borrow from a bank. This way, you are not risking your relationship with your family members and friends.
#4 Not Having An Emergency Fund
If I were to ask you: Do you like surprises? For the majority of times, you would answer YES (depending on the circumstance and what’s on offer.)
But, if I were to ask you: Do you like surprises in the form of emergencies? Well, you know the answer (NO, of course!)
Given the very nature of emergencies, no one would willingly ask or wish for it. Yet, most of us ignore planning for it and creating a separate fund that can be a life savior in those difficult times.
I was guilty of doing the same until I got my act together, and consciously started setting aside money for emergencies. This is also one of the common money mistakes to avoid.
If you have not already, check out my post on how to create an emergency fund for a step by step guide.
#3 Not Saving And(OR) Not Investing
If you are not saving or investing money, achieving financial independence might be a distant dream.
You see, it is essential to first save money to invest in the right places (stocks, bonds, business, startups, real estate, etc.)
You want to take advantage of the compounding factor that can grow your money fourfold over the years.
But, if you are always running short on money and your expenses are higher than your income, you need to make a change RIGHT NOW! Get your costs in control, so you spend less than you make and save the balance.
Savings = Income – Expenses
For more information/tips on investments, check out my post that talks about the different types of investments for beginners.
#2 Not Having A Budget
Personally, not having a budget is like sitting on a train or an airplane with no destination. The majority of the folks struggling with their finances do not have a budget and is one of the common and popular money mistakes to avoid.
If you do not know how much you spend every month, how will you determine your savings and investment goals?
The journey of financial independence does not play out by itself. If you put in the hard work and be disciplined enough to stick to your guns, things will happen.
You will start seeing a change in your mindset and saving money (whether its $5 or $50) will become second nature.
#1 Failing To Create A Financial Plan
It ALL starts here. Your personal financial plan, a blueprint of how you want your finances organized is the beginning of your financial journey. Creating a financial plan should be your #1 priority.
A financial plan can include (but not limited to) the following:
- Savings goals
- Expense goals
- Investing goals
- Types of investments (stocks, bonds, ETFs, Blockchain, etc.)
- Real estate investment
- Business/startup investment
- Child education and 529 plan targets
- Investment in a vacation home
- Paying off student loans
- Paying off credit card debt
- Clearing any other form of debt
- Insurance (both health and life)
- Retirement planning
- Estate planning
There are no shortcuts to financial independence (unless you are wealthy) and creating a financial plan is like learning the alphabet before actually learning the words.
In summary, please avoid the above money mistakes and incorporate the tips and suggestions into your life.
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Please share your experience on the mistakes you’ve made with money and how did you avoid them. Also, share your thoughts, tips, and ask away any questions in the comment section below!
My main weakness is impulse buying and going to the grocery store while hungry. Little bits of wasteful spending add up quickly as well
Thanks! I’ve have been guilty of that a few times and consciously working to avoid impulse buying.
Great list of money mistakes. We’re guilty of a few of these.
Thanks Lisa!
I have to be so careful about using my credit card! It’s so easy to overspend with it. Great tips!
Yup that one is an easy pitfall to land into that puts you couple steps behind every time you make some progress on other fronts. Thanks!
I feel like the biggest mistake most people make is to live beyond their means and you have given a very good example of leasing a car that you cannot afford. These are the things that can give you temporary gratification but can harm you in long run.
Couldn’t agree more. Thanks!
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All great tips, definitely want to avoid these money mistakes. And not having a plan is one of the worst–if you don’t plan for saving, investing, paying off debt or anything else, it’s very dfficult to get ahead with your finances.
All true. My biggest financial vice is impulse buying while in line at the grocery store. Candy bars and cold sodas look so tasty while waiting to check out.
Indeed – they are very good at point of sale tactics and sometimes it’s hard to control 🙂
great list and I have definitely experienced so many of these to be true. Having peace financially makes such a big difference and some small, although sometimes difficult, changes can make a huge difference.
Absolutely Phil!
Very informative and much needed article for money management ????
Thanks!
Some of the greatest financial plans are ruined by not implementing these tips. Making the mistake of not having an emergency fund is my worst fear too. Great article!
Thanks John!
I am surprised how many people still fail to see the power of living within your means. For example, when choosing a place to live or a car, do you really need the biggest and best or are you just doing that for the purpose of status? I drive a 10 year old jeep and LOVE it – I technically have the money to get a newer car, but it’s in great shape so why spend the money?
Exactly Britt! No need to spend money on stuff that is just good to have instead of something that you need and will make your life better. I drive a 10 year old ford too and love it 🙂
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The biggest mistake we made with money in our early marriage was that we didn’t designate a specific purpose for our savings. Consequently, we began to see our savings account as “one big pile of green money” that could be spent on pretty much anything. So, instead of saving for a house downpayment, we might use it to take a vacation. We figured it out and rectified the mistake in pretty short order. But, even after 31 years of marriage I still cringe when I think about it.
Thanks Hope! We all learn from mistakes and I’m glad you rectified it as soon as you realized. Better late than never!
These are great tips! I purchased a home way under what I was pre-approved for as I wanted a low mortgage payment. I thought it interesting that my mortgage broker commented how few people purchase much lower than their pre-approval. Thanks for sharing these tips.
That’s a great way to be money conscious and making the right choice for your financial future. Thanks!
I feel fortunate that my parents instilled in me the importance of financial independence before starting a family. Also, once I finished college, I was off of their payroll. Of course, irritated at first, but it was probably the best thing for me to learn to make it on my own. So many kids these days continue to depend on parents to bail them out, and it is true, this only deprives you of the life lesson of working it out yourself/independently.
Indeed Jenny! You learn the best lessons of your life in the toughest moments. Thanks!
These are definitely money mistakes everyone—I mean everyone—should avoid. It’s so important to take good care of your finances and avoid screwing up your future! And dealing with all of these is a good step to start with.
Thanks Mint!
Great overview of the most essential money things to avoid, very common mistakes indeed.
Thanks Evelyn!
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I agree with your list, especially number 1. Not enough people are investing their money.
As an accountant, I completely agree with your tips, especially about not racking up credit card debt and having a savings plan.
Thanks Christina!
Great tips! The one thing I’d add, especially for fellow Millennials is that growing your income matters. Staying complacent in a job that isn’t paying you what you need to make in order to meet your financial goals is just as damaging as not budgeting!
Agreed Kimberly! Thanks for the comment.
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These are all very true and such great tips. Thank you for sharing this.
Thanks Diane
those are really good points.
credit card spending is a thing to watch out for.
creating a financial plan is key to achieve so many good things in life.
buying a home that you can’t afford is a real nightmarish thing to do.
thanks for sharing these amazing tips!
Hari. https://gobigwithaffiliatemarketing.com/blog-report-for-go-big-with-affiliate-marketing-june-2020/
Thanks Hari!
Tips numbers 3 and 4 are definitely two of the most important things to consider when it comes on to money. We can’t solve unexpected emergencies if we don’t have any money and if we’re not saving, we’re in big trouble. That’s why it’s so important for us to have more than one income stream.
Absolutely Remonia. Thanks for sharing!
This is extremely helpful. I am about to graduate college and these tips are great! Thanks for sharing.
Glad you found it helpful Sydney! Good luck with graduation!
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Such amazing tips! I have a few things to avoid from past mistakes. Planning and saving are a MUST!
Indeed! Thanks for sharing!
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