Are You Making These 5 Critical Financial Mistakes? Struggling with money can be a lonely, stressful feeling. But money doesn’t have to be the source of problems and pain. Proper money management can relieve those feelings of uncertainty and replace them with a sense of stability and comfort. Managing money isn’t an impossible dream or unattainable goal. It’s a skill that can be learned, and it becomes a lot easier when you avoid some common money traps. If you’re struggling to get by, I'm here to help! Because trust me… I've been there. Fixing these five critical financial mistakes can have an immediate and dramatic effect on your money problems.
As an adult, it’s easy to think you should get whatever you want, whenever you want it. After all, you work hard for your money and should spend it on the things that make you happy, right? Unfortunately, many of us take this idea to an unsustainable level, and the effects trickle down into every part of our financial lives. Living beyond your means is a quick ticket to the poor house. This was me circa 2008. By spending everything you make (and more), you’re forced to endure the stress of living paycheck to paycheck. And when you’re struggling to keep you head above water, saving for the future isn’t even an option.
The Fix: Living below your means is the first step to curing a whole slew of financial problems. The best way to start is to create budget. Now, don’t get scared off! A budget doesn’t force you to live like a pauper. It’s simply a plan for how you’ll spend your money each month. For a spender like me – I think of a budget as a fence. A safe place for me to spend my money, but that doesn't mean it can't be fun or it has to be boring.
If you're a spender struggling to budget, then I KNOW I speak your language! And my new book, The Recovering Spender will speak right into your heart… it will encourage you financially when all you've heard is discouragement. Check it our HERE.
Debt is the single most destructive force threatening your financial health. When you’re in debt, part of every dollar you earn goes directly to your creditors. And when you owe money to other people, saving it becomes a difficult task. The more you owe, the tougher it becomes to get ahead. Debt is usually a symptom of living beyond our means. Rather than paying for things with available cash, we take out a loan instead. That increases the amount we owe while decreasing the amount we’re able to save. Then, when we run short on cash for our bills, we take out another loan to cover the balance. It’s a vicious cycle, and it could be costing you dearly.
The Fix: With access to easy credit and the pressure to “keep up with the Jones'”, living with debt has become a “normal” way of life. But, just because everybody else doing it doesn’t mean you have to join the crowd. Learn to live below your means by creating a budget. If you’re having problems, avoid using credit cards. Stop running up more debt, and pay back your current debt as quickly as possible. Before spending, ask yourself if you have the cash to cover it. If you do, you’re good to go. If you don’t, just say no!
Creating a budget might lay the foundation for sound money management, but having a plan and sticking to it are two separate issues. It doesn’t do much good to create a plan but fail to execute it. In fact, failing with your budget can cause the opposite of its intended effect. Seriously, it can be super frustrating to create a budget but still find that you’re overspending. What we fail to realize is that even the smallest of expenses can add up. So, even though we have a plan for the majority of our spending, our unconscious spending habits could be wreaking havoc with our budget.
The Fix: Tracking your expenses helps you stick to your budget, and makes it easy to identify holes because you know exactly where your money is going. Using a pen and paper, simply write down what you spend. Then, check in with your budget once a week to make sure you’re still on track. The whole process takes just a few minutes a day, and it can make a huge difference in your ability to save.
If you're having trouble keeping track because of tons of little transactions with the debit card, then switch to cash for all of those little miscellaneous purchases. That way, when the budgeted amount of cash is gone, it's gone. No overspending.
With pension plans practically non-existent and the future of social security in question, not saving for retirement is one of the biggest financial mistakes you can make. It’s easy to put off saving, but retirement will be here before you know it. Failing to save for retirement creates a long-term problem with severe consequences.
When it comes to retirement, time is your best friend. Not only does time smooth out the short-term swings of the market, but the power of compound interest requires time to work its magic. Unfortunately, you don’t get a “do-over.” By failing to use the time you have now, you may be forced to play catch-up later on. Worse yet, you might not get to retire at all.
The Fix: Start saving for retirement now – like yesterday! At the very least, be sure to save enough to meet any employer match you might have. That’s free money available for your retirement. Don’t let it go to waste.
Practically everybody has done it before. Maybe you’re strapped for cash and don’t have the money. Or, maybe you just have a poor system for tracking your bills. Whatever the reason, you end up paying late. While repeatedly paying late can have serious repercussions for your finances, not paying them at all can be devastating.
Late payments have a huge effect on your credit score, which can raise costs on everything from mortgage interest rates to car insurance premiums. While a credit score doesn’t necessarily provide a complete picture of financial health, higher rates could cost you big bucks over time.
The Fix: Create a system for organizing your bills so you don’t miss payments. Try using autopay to make sure you’re always on time. Creating a budget can also help you keep track of that month’s bills. If you’ve already missed a payment, don’t panic. Simply call the company and explain the situation. Pay the bill immediately, and ask them not to report it to the credit bureaus. Then, be more diligent about paying on time.
Wrapping Up My course – The Financial Renovation goes in great detail on ALL of these points. If you're ready to take things to the next level, I'd highly recommend it. Saving money might seem hard, but it doesn’t have to be.
Sometimes, finding the right path is all it takes to improve your fortunes. By avoiding these critical financial mistakes, you’ll give yourself a fighting chance to make the most of your money.