It is inevitable that during your lifetime of getting your finances together, you’re going to make some common money mistakes. Sometimes these blunders will be pretty significant, other times they are just money mistakes everyone makes at one point in their lives. Either way, we are all human.
As someone who only knew the basics of money and establishing good credit prior to 2014, I made my fair share of missteps in money management. But just like with anything, learning from your mistakes will help eliminate those issues in the future. Here are some of the common money mistakes to avoid making to keep your finances in healthy shape.
1. Buying a new car too soon
We all know about depreciation and how fast new cars lose right off the lot, but we also know used cars can quickly become headaches too. That money for a down payment and recurring monthly payment could have gone to paying off student loans faster or building my savings up.
Don’t make this common money mistake. If you have a car that runs well and is not causing major repair headaches, stick with it. There is plenty of time to upgrade your car.
2. Moving into an apartment you can barely afford too soon
Graduating college and getting big boy job was exciting. While in hindsight it might be time to move out of Mom and Dad’s house, this can also backfire if you move out too quickly.
While I was able to pay all my bills, student loans, car payment, and credit card debt, it left with virtually nothing to save or invest. This set me back a few years of having great savings and retirement. It also set me up to have to move back in with Mom and Dad after a few years because I lost that job and had nothing to really fall back on.
3. Paying your bills first
A common money mistake trend I noticed among many of my millennial peers, is to immediately pay bills, loans, etc. While that is commendable and responsible of you, you need to take a step back and pay yourself first.
By the time we are done paying bills, gas for our car, groceries, etc., we end up having very little to save or invest. By paying yourself first and calculating how much to take out as soon as you are paid, you ensure consistent savings.
4. Using a credit card to purchase a high-price item
Having a credit card can be tempting for a lot of people, especially if you have a decent limit on your card. But this is what gets people into serious financial trouble. If you can’t afford what you are putting on your credit card, do not purchase that item. This is a money mistake pretty everyone has probably made at some point.
You don’t want to carry a balance because you can be slammed with high-interest rates, which that money could have been put to better use. Of course, there are emergencies that may leave you with no option. Life happens. But make sure you pay it on time and try to pay it off as fast as possible.
5. Not living below your means
Probably one of the top money mistakes millennials make (and honestly, many generations of people do), is not living below your means. You should be spending less than you earn, making smart purchasing decisions, and not having to live paycheck to paycheck.
The problem is, we like to appear like we have the best things and compare ourselves to what others have. Whether that is a car, a house, clothes, jewelry, whatever it may be.
This does not mean you need to be cheap. Instead, don’t buy a house you can barely afford. Don’t purchase a car that you’ll struggle to pay. Ignore what others have and focus on you.
6. Not developing a budget or savings plan
No matter your age or level of finance knowledge, you should develop a budget and savings plan. You might insist on saving or taking care of your finances without writing it down, but this is a huge money mistake!
When I started tracking my net worth and creating a savings budget spreadsheet I got the big picture. I was able to catch where I was overspending, where I could save more, and overall know my net worth to help me make better financial decisions.
Creating some spreadsheets and seeing your net worth might not be exciting, but it is necessary to improve your finances.
7. You only have one source of income
When it comes to money mistakes, I don’t think we really consider the issue with having one source of income. But in order to secure yourself financially, build a savings and retirement portfolio, you should have more than one source of income.
For example, the average millionaire has 7 different income streams! But for the majority of us non-millionaires, having some other revenue streams is good to protect ourselves. Having freelance work on the side saved my ass when I lost my job a few weeks before Christmas until I found my next full-time gig.
8. Blowing your tax refund money
If you have debt of any kind or no real emergency savings, that money should be going towards that instead of some random material item. Saving this money can really help your savings take off or help deliver some relief to any debt you might have. It’s certainly not as exciting or glamorous as spending that money, but you’re setting yourself up to be in a better financial position.
9. You’re not saving for retirement
Out of all the money mistakes, this one might be the one I have the strongest feeling towards. And it is a mistake by not saving for retirement. I get that retirement may seem so far away, it’s not exciting to have access to the money, or whatever, but it is CRUCIAL. Even if it is only a little bit you can contribute, take advantage of your company’s 401k and if they don’t have one open an IRA and contribute yourself.