Let’s be honest: We all make money mistakes.
Some are worse than others, but none have to be forever.
If you’re making (or have made) any these ten money mistakes, now is your opportunity to recognize and rectify them so you can start building toward a better financial future today.
1. Living Beyond Your Means
If your expenses consistently exceed your income, there’s no way to move toward your financial goals.
Live within your means. Increase your income and decrease your expenses until you get there. Keep going until there’s a positive gap between your income and expenses.
The first step toward building wealth and affording the life you really want is spending less than you earn. This rule holds true no matter how much money you make. If you make $100,000 a year and spend $105,000, you’re still netting negative.
To make any kind of progress toward financial freedom, you have to start with this most basic principle: Live within your means. Increase your income and decrease your expenses until you get there. Keep going until there’s a positive gap between your income and expenses. Then save and invest the difference, using a budget to keep yourself accountable.
2. Falling Behind on Bills
Whether it’s your cell phone bill or your credit card, falling behind on your payments is not a habit you want to get into. For one, it’s a hard habit to break, plus you’ll end up paying late fees every time you make a late payment. Not to mention the damage you can do to your credit score in the process.
Make bill payments a priority by building them into your monthly budget and automate them whenever possible so you don’t fall behind.
3. Paying Only the Minimum Amount Due on Your Credit Cards
When you only make the minimum payment on your credit card, you enjoy some temporary spending relief in the present, but you also commit to paying more in interest charges later. This temporary trade off can lead to serious financial trouble in the long run. The interest will continue to grow every month, and if you continue to only pay the minimum, you may never pay off your total balance.
Make paying off your credit card debt a priority and avoid taking on any additional consumer debt until you do. If you use credit in the future, be sure to pay the balance on time and in FULL each and every month.
4. Ignoring Your Debt
Ignoring your debt is even worse than only making the minimum payments. Not only will the interest continue to compound, but you’ll also rack up late fees and damage your credit in a way that can make it difficult to do things in the future, like getting a mortgage.
So if you’ve been ignoring your debt in the hopes that it will some how resolve itself, know that nothing will happen until you confront the numbers and start putting together an action plan to become debt free.
5. Going Without (or Not Having Enough) Insurance
Going without insurance to save money can be risky, if not downright irresponsible.
Sure, not everyone needs every type of insurance. For example, if you don’t have any dependents, you probably don’t need life insurance. But for the needs you do have, like protecting your health, insurance is a valuable safety net.
It’s a tool, not only to provide you with what you need, but also, to protect you from serious financial problems like bankruptcy.
So be sure to regularly reassess your insurance policies to make sure you have the appropriate coverage for your evolving needs.
6. Not Having an Emergency Fund
An emergency fund is like your own personal insurance buffer against unexpected financial problems and costs.
These expenses, though unpredictable in terms of timing, are almost certain in terms of likelihood. From medical costs to home repairs, it’s never a matter of if, but when these expenses will arise.
If you don’t have a cash reserve in a readily accessible savings account for such occasions, you may have to rely on high-interest credit card debt to cover your emergency costs. So be sure to make saving three to six months’ worth of living expenses in a liquid savings account a financial priority.
7. Failing to Maximize Your Career
Your career is one of your most valuable financial assets — providing the income to fund your present expenses, your future retirement and all the life you want to live in between.
If you’re not maximizing your career — meaning, you’re not seeking growth opportunities or asking for raises or moving on from dead-end jobs — you’re missing out on advancement opportunities and potential income growth.
Look for ways to consistently improve your skill set and channel your past experience into work that can command a higher salary, so you can continue accelerating your progress toward your financial goals.
8. Not Investing
Investing can grow your money in a way that money sitting in a savings account cannot match. Is there risk? Absolutely. But historically speaking, the stock market has returned around 7 percent on average. Compare that to the interest rate in your savings account.
Not investing, or putting off investing, means missing out on the benefits of compounding and long-term market gains. The longer you say “not yet” or wait for “someday” to start, the more you have to contribute to your investments later on just to catch up.
You can start by investing in your workplace retirement plan or by setting up your own retirement account like a ROTH IRA, setting aside at least 10 percent of your income for your investments and increasing that percentage over time.
9. Letting Someone Else Call All of Your Money Shots
Whether it’s to your partner or your parents, do not give up your agency by letting your loved ones make all of your financial decisions.
While it’s OK to seek advice from family and make financial decisions in partnership with a spouse or partner, it’s imperative that you be actively involved in the money management and decision-making process.
You should also have a comprehensive grasp of your full financial standing — that is, what you earn, what you own and what you owe at any given time.
Most of us will have to manage our own money at some point in our lives, whether it’s early on or later in life, after a divorce or the death of a spouse. We’ll be far better off if we’re not just learning about our financial situation in the middle of adapting to those circumstances.
10. Not Having a Financial Plan
A financial plan doesn’t sound particularly exciting, but in reality, a financial plan is your roadmap from wherever you are to wherever you want to be.
So if you’re serious about getting your goals, whether it’s a house, a car, an around-the-world trip, sending your kids to college or all of the aforementioned, you’re going to want to have an action plan that lays out the necessary financial steps for affording all of it!