5 Expensive Money Mistakes

You work hard (and hopefully smart) for your money. You don’t want to flush it down the drain with bad financial planning. So here are 5 expensive money mistakes and how to avoid them.

1. You Think You’ll Live Forever

Sorry to be the one to break it to you but you won’t. And granted, this mistake won’t cost you anything, but it could cost your family dearly if you don’t have a Will, no matter how young and healthy you are.

Why is this such a big deal? Here’s a little story.

Jimi Hendrix, the famous guitarist, died unexpectedly at just 27 years old. While that’s already devastating, add to that the fact that he died without a Will.

His sudden death brought on decades of expensive legal disputes and arguments to figure out who his money & estate would go to.

No matter how well your family gets along, it can be a different story when money is at stake. Regardless of how few or many assets you have, having a Will can save years of headache and a lot of money.

Getting a Will is easier than you might think – and it doesn’t have to cost you a ton of money. You can get your Will made online, in your free time, with Legal Zoom for less than $100.

And don’t worry – they have attorneys you can speak to so you can sleep better knowing your family & assets are protected.

2. You Loooove Paying Interest

Of all the money mistakes we can make, having credit card debt is one of the worst. The average APR on a credit card is almost 16%, but some cards have interest rates well above 20%!

That’s expensive.

How expensive? Let’s say you go and buy a sofa for $4,000 and finance it on your credit card with a 25% interest rate. Then you only make the minimum payments of $90 a month.

It will take you 10 years to finally own that $4,000 sofa. Oh, and it will cost you over $11,000.

These high interest rates are why the average household is carrying nearly $16,000 of credit card debt, according to NerdWallet. That interest just keeps piling up, and it’s really hard to get out from.

If you have credit card debt, paying it off should be your priority.

Focus on one card at a time. Pay as much as you can on that while only paying the minimums on the others. When one card is paid off, you use the money you were paying on it to pay off the next card. You continue this way until all the cards are paid. Paying down debt this way is more efficient and effective than throwing money at each card randomly.

3. Use The Law To Your Advantage

Small businesses are the backbone of our economy. We’re not attorneys, but if you are going to start a small business (or you’re already running a business), you should consider incorporating.

Why?

For one, you can get a lot of legal protections. One of the most common entity types for small businesses is an LLC (Limited Liability Company) and running your business as an LLC can serve as a legal shield to your personal assets.

And if you’re wondering, your business doesn’t need to make a certain amount of money to take advantage of the LLC benefits. You can learn more about LLCs and see how you can create an LLC here.

Secondly, you can potentially save a ton of money in taxes (and it’s 100% legal).

The United States has a new tax plan that is reducing taxes for small businesses.  And whether you’re making $500 a year or $500 an hour – you might be able to legally pay less in taxes if you incorporate.

You can see what entity type is best for you here.

And if you don’t want to shell out a thousand dollars to an attorney to incorporate, Legal Zoom can do it for you at a fraction of the cost.

4. Budgets are for Poor People

The foundation of a healthy financial house starts with your budget, and that is true whether you make $1,000 or $100,000 a month. You have to know how much you have coming in, going out, and where it’s going.

Having a budget helps us save money, shows us areas where we’re wasting money, and most important, let’s us control our money rather than letting our money control us.

Making a budget is not difficult. You can use a free app like Mint or just open an excel sheet and write down where each dollar is going.

The simplest budget breakdown is 50/30/20. You budget 50% of your income for essentials like housing and transportation, 30% for discretionary spending like entertainment and clothing, and the remaining 20% for financial goals like debt repayment and investing.

Want to learn more about investing? You can read our free eBook

5. It’s an Emergency

Do you have an emergency fund? If the answer is no, you are not alone. A startling 61% of Americans don’t have $1,000 set aside for an emergency like a car repair. Yes, sixty-one percent.

Maybe you’ve been lucky and haven’t had an expensive emergency but life happens, and you can’t count on luck to keep it from happening to you. The best thing to put between yourself and potential disaster is an emergency fund.

The goal to have six months’ worth of expenses saved up that you can easily access.

That might sound like an absurdly high amount of money to save but what if you lost your job and it took a month or two to find a new one? Would you put all of your expenses on credit cards, have to borrow money from your family, or would you simply not be able to pay your bills?

Building an emergency fund might seem intimidating at first, but take it one step at a time. Start with a few dollars a day if you need to. Remember, you can only touch the money if it’s an emergency.

We’ve All Been There

We’ve all made financial mistakes, and some of them are worse than others. If you can either avoid these five expensive money mistakes or take immediate action to undo any you may have already made, you won’t have to be the person used as a personal finance cautionary tale for articles like this! RIP Jimi.