Opinions expressed by Minority Mindset contributors are their own.
I was at work one day, toiling away in my cubicle, when I heard my coworker bragging about how he’d spent $250 on shorts. You read that right, shorts! Of course, these weren’t just any shorts, these were some fancy name brand shorts. Curious, I asked my coworker “Do those shorts do anything that regular $10 Walmart shorts don’t do?”
“Yeah man, they look great! They’re an amazing investment!” he replied.
I cringed at the incorrect use of the word “investment” and left the conversation. I proceeded to spend the rest of my shift thinking about what I could have done with $250. I could have invested it in an index fund, bought groceries for 2 months, or paid my condominium association fees for 1 month!
Many of us make foolish financial decisions, probably because we were never taught about finance. With such a gap in knowledge it’s only logical for people to overspend or commit other financial blunders. Here are 3 avoidable financial mistakes.
1. Making unnecessary, expensive purchases
Don’t be like my co-worker! Yes, it’s great to have nice things, but only if you can afford it. Unnecessary purchases include things like overpriced name brand clothing, fast food, or the newest smart phone. It’s usually a good idea to go with the cheaper alternative of equal quality than to overpay for something you don’t absolutely need. Simply put, don’t pay $250 for shorts just because they might capture the subtle beauty of your knees. I guarantee the $10 shorts at Walmart will do the exact same thing.
2. Assuming you’ll have a higher income in the future
So, you decided to buy the outrageously priced pair of shorts your favorite musician released as part of their clothing line. Why? Well, it’s not really that expensive because you’ll be getting your bonus check soon, your tax return, and there’s a rumor going around that you’re going to get promoted.
Optimism about the future is wonderful but remember to be sensible. You may think you’ll be making a ton of money soon but that’s no reason to increase your spending. Millionaires have accumulated their wealth because they live below their means, and not because they spend every penny. Also, nothing is guaranteed. Your bonus might be smaller than expected. You may owe taxes for the year. The rumor about the promotion? Turns out it was false and you’re getting fired because you’ve been flaunting your kneecaps with those shorts you wouldn’t shut up about.
3. Having no emergency savings
You’ve somehow managed to spend most of your money on clothing, pizza, and a new phone. After a long day out on the town fueled with junk food and impulse purchases you drive home. On the drive back, your car suddenly shuts off. You can’t seem to get it started again, and you need to get it towed.
You start furiously swiping and tapping away on your new smartphone to check your account balance. Nice! You have $25 to your name because you never opened that emergency savings account. The bright side? You can sit in your car watching Netflix in high definition on your smart phone while eating pizza and waiting for your friends to pick you up.
The majority of people don’t have money set aside in savings to cover unexpected occurrences. In 2016 Forbes reported 63% of people didn’t have enough money in their savings to cover a $500 emergency. Don’t be like the majority, be prepared.
To recap, spend your money wisely. Buy items you need at a fair price, there is no need to pay extra. Don’t spend more just because you think you’re going to earn more. There are never any guarantees. Finally, have money set aside in a savings account to be prepared for the unexpected. Emergencies aren’t fun, but it’s great to be ready for them.