10 Financial Mistakes Most of Us Have Made in Our Lives
We've all made dumb financial decisions. Even the most successful people have made their fair share of stupid mistakes. Money, in all its glory, causes us to lose all common sense. If you’ve found yourself in a crap heap due to some sketchy financial choices, you're not alone. If you want to stop being stupid with money, you’re going to have to learn to manage it better.
One of the ways to do that is to learn what triggers your spending. You also need to have a good understanding of what financial experts consider a waste of money. In doing so, you’ll transform your relationship with money. You'll also make smarter decisions about how you use it in the future.
Below are ten financial decisions many of us make (and regret). How will you avoid them in the future?
1. Spending Without Budgeting
To be financially secure, you’ll need to come to terms with your money problems. One of the easiest ways to do that is to create a monthly budget listing all your bills and expenditures. Take into account all the income you generate in a month’s time. Then subtract the amount of your expenses from the amount of money you bring in. From there you’ll see where you need to cut back on your spending.
Further reading: The Power of Not Budgeting
2. Failing to Stop Spending
A common problem that many make when money is already tight is to continue spending anyway. We spend money on unnecessary things when we can’t even pay our bills. Just because Pitbull glorified going to the club on his rent money, it doesn’t mean that you should, too. The rule to having more money boils down to this - either earn more or keep more of what you’ve earned by spending less.
Further reading: 15 Tips To Quit Spending Your Money
3. Buying Something You Can't Afford
Most of us have made this mistake. We finance homes, cars, boats, and recreational vehicles that take years to pay off. We have a rental obsession. We stretch our finances as far as we can. Yet we don't think about what would happen if, say, we lost our job.
Further reading: How to Stop Wanting Stuff That You Can’t Afford
4. Not Maxing Out Your 401(k)
The Motley Fool reported that of all American workers, 73% didn’t have a retirement plan in 2015. See, it goes to show you that you’re not alone if you haven’t saved for your future. If you have a retirement plan at work, use it. Especially if your company offers a match. You can contribute $18,000 to a 401k each year. This doesn't include any employer match contributions. You can also contribute an extra $6,000 if your 50 years or older.
Further reading: CNN Money's Ultimate Guide to Retirement: 401(k)s
5. Not Having an Emergency Fund
If you spend everything you make, you probably don't have an emergency fund. Rather than give up, do what you can to save what you’ve got. I always suggest paying yourself first. After that, take care of your expenses and cut back in whatever ways that you can.
Further reading: 8 Surprisingly Effective Ways to Beat Your Budget
6. Using Credit Instead of Cash for Small Purchases
Unless you’re earning rewards for using credit cards, you should never use them to make small purchases. Still, so many people do and fail to pay off their balances in full. That $3 latte costs a lot more once you tack annual fees and interest charges onto it. If at all possible, keep cash on hand to take care of the small stuff and leave your credit cards for emergencies only.
Further reading: 5 Incredible Reasons to Switch to Cash
7. Buying on Impulse
Everyone makes purchases they don’t need. The way to get past this is to not carry extra cash or credit cards with you wherever you go. Also, exercise the 24 hour rule. If you see something you think you need but weren’t planning on buying right away, wait a day and see if it’s still a necessity.
Further reading: What is Dopamine-Induced Impulsive Purchasing (DIIP)?
8. Paying Your Bills Late
Charges incurred from being late on a payment can kill your budget. Not communicating with a creditor about your inability to pay a bill on time can cost you a small fortune. Imagine how hard it is to pay a debt in the first place. Then, tack on $25-$50 in late charges and you can see why not making payment arrangements is stupid.
Further reading: Procrastinator's Guide To Bill Payment
9. Not Paying Off Your Credit Card Balance in Full Each Month
Credit card interest rates vary. Unless you have stellar credit, you’re going to pay a lot more each time you finance something with your credit card. If you carry a balance, you’ll always pay more than you intended to pay on the items you bought earlier in the month.
Further reading: Paid in Full versus Paid Off Less than Full Balance
10. Taking Out Student Loans to Finance Your Education
There aren't a lot of Americans that can spare themselves from this financial faux pas. Even then, how much money do you have to contribute to you or your children’s college education? Have you applied for scholarships and seen if you qualified for grants? In 2014, student loan debt totaled $1.2 trillion. An estimated 7 million debtors were in default at the time of this WSJ report.
Further reading: Want To Graduate College Debt Free? Teach In A Rural Area
'Live and learn' is the truth about most financial decisions. If you feel you’ve done something stupid with money, don’t beat yourself up. A vast majority of us have spent more than we've made. We've charged things we could never pay off. And I'm sure we've all refrained from having something repaired until we needed it completely replaced. It’s not the first time you've made a financial blunder and it’s certainly not going to be the last. Make it your mission not to make the same mistake twice. That will put things into perspective for you and maybe make managing money easier for you. You never know until you try, right?
What financial mistakes have you made and (hopefully) learned from? Please share below!