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You work hard (and hopefully smart) for your money. Surely you don’t want to flush it down the drain making common financial mistakes.
Yet, many of us make foolish money management mistakes, probably because we were never properly taught about finance. With such a gap in knowledge, it’s only logical for people to overspend or commit other financial blunders.
Have a look at the most common money mistakes people make and identify if you’re guilty of some. It’s never too late to learn better and stop doing them.
8 Common Financial Mistakes You’re Probably Making
Personally, I’ve done at least three of the most common financial mistakes. But realizing my mistakes was the first step to redeeming my financial situation. I admit to occasionally committing one or two, but at least I’m aware of it.
Being Too Credit-dependant
Kudos to the bankers that convinced us the money on the credit cards is ours. Well, it’s not. There are advantages to using credit cards, but paying double-digit interest for essential products for everyday use only hurts your financials.
Credit cards give us the fake picture that we have more money than we actually do. This tricks you into spending and ultimately leaves you with unwanted credit card debt. Learn to use credit cards responsibly.
You Don’t Have A Budget
Tell me the truth, how many times have you struggled to survive until the next paycheck? Just because you miscalculated or bought a leather jacket you couldn’t really afford.
It’s not enough to earn money and waste it without thinking twice about it. You need to be intentional with your money and very aware of how it’s spent on bills, how much can you put aside for savings, and how much towards investments.
So if you haven’t already, now it’s the perfect time to create your budget.
You Don’t Have An Emergency Fund
If one unexpected event like a visit to the ER can throw you off financially then you’re doing one of the most common financial mistakes. You need an emergency fund of at least $2,000! This way you’ll always be prepared for the unexpected, which inevitably happens, one way or the other.
Yes, there’s such a thing as saving too much. Regardless of what your parents told you. Endlessly stacking your cash under a pillow is a very common money mistake you can’t afford to make. Too much saving is losing.
All you need is an emergency fund, and enough savings to cover 6 months' worth of expenses. The rest should go towards investments or enjoying life.
Faking A Rich Lifestyle
In modern civilization, people have used money as a means to gain a higher status in society and be perceived as worthy of being part of the upper class. Social media has only made things worse – it looks like everyone is going on expensive travels, buying luxury clothes, cars, homes… So why can’t you do the same?
But it’s a trap. You’re wasting more than you can actually afford and this can have severe long-term implications on your financial health. Creating a fake image about yourself isn’t sustainable and sooner or later people will see the cracks.
Learn to live a life that your budget allows. There’s no glory in wearing $1,000 sneakers when that’s a third of your monthly salary.
Keeping Up With New Technology
Do you really need the latest iPhone? What’s wrong with the phone you already have? And that laptop of yours, it’s not broken – it runs just as well as a new one.
Brands create this urge that we need to keep up and always have the latest models. Otherwise, we feel like we’re missing something. But you’re not. You’ll be just paying more money for something you already have. It’s not a competition. Look at your grandparents, I bet they have the same old telephone from a decade ago and they’re perfectly satisfied with it.
You Think Investing Is For The Rich
Here’s the truth: investing isn’t only for the rich, it’s for everyone who wants to build wealth regardless of their background. This is one of the most common financial mistakes people make, and I bet you do too.
You can start investing with as little as $100. However, make sure you educate yourself about what you’re getting into first. Yes, investing comes with a risk but it’s not gambling. You need to make educated decisions about your money and your goals.
Unused Memberships And Subscriptions
Just last week I realized I’m still paying for iTunes each month even though I’m using Spotify. So you may think it’s not a lot of money put when you put it all together it piles up.
I bet you’re subscribed to at least 3 services you haven’t used in God knows how long. Probably you’re not even keeping a record of all your memberships and subscriptions and each month they’re draining your account without you even noticing. Just go ahead and cancel them. If you ever need them again you can join again, no biggie.
Counting On Future Money
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. Nothing is guaranteed. The bonus might be smaller than expected. And you may owe taxes for the year. The promotion? Well, you may be getting fired because you’ve been flaunting your kneecaps with those shorts you wouldn’t shut up about.
Believing The 0% APR Story
Companies have gotten pretty crafty about luring people into buying things that they don’t have the money for. One way they do this is through financing.
For example, if you’re going to buy a new stove that costs $1,000, companies will try and sweeten the deal by offering you a, “zero money down and zero percent APR for the first 12 months of your loan!” kind of deal.
This way even if you don’t have enough money to buy a new fridge you can still get it anyway.
But it is a trap and a very common financial mistake for two reasons:
- One, because if you couldn’t afford the fridge today, chances are you won’t be able to afford it a year from now.
- Two, because of later-interest, you’ll end up paying way more for that fridge then you bought it for.
Avoiding these common financial mistakes will help you keep your finances in check. It’s important to be accountable and responsible when it comes to your money. So don’t overspend, but also don’t oversave, and you’ll be fine.