5 Money Mistakes That Will Cost You
Do you have any money mistakes that you regret? We all have made mistakes. We buy something we regret. We invest in a hot stock tip and lose everything. We get caught up in the moment and overspend.
The goal is to limit these money mistakes as much as possible since we can’t eliminate them completely.
How do we limit them? By learning about the mistakes first. Use the following examples of money mistakes to help you avoid a similar mistake.
5 Money Mistakes to Avoid
We all make mistakes with our money. The key is to learn from these mistakes and the money mistakes others make so we can reach our financial goals.
Saving What is Left
Most people decide to save what is left at the end of the month. The problem is that they usually spend everything and therefore save nothing. They say next month will be different, but 5 years later and it’s the same sad story.
To overcome this mistake, you need to save first. Set up a transfer when you get paid to move money over to your savings account. To make things easier, set up an automatic transfer so you never have to remember to save. Once you save, you can happily spend everything that is left in your checking account and still get ahead financially.
Trying to Time the Stock Market
This is one of the investing mistakes so many people make. They think they are smarter than the market and try to time it. But what happens is they buy in and then ride the market as it crashes. They finally sell and run. Then they wait until after most of the gains have been made and then decide to invest again. Sadly, the market tanks and they lose money.
To solve this problem, you need to have a long term view when investing. Know that the market rises and falls. In order to be successful, you need to ride out this volatility. Get control of your emotions and don’t panic and sell.
You can’t time the market. You are better off riding out the ups and downs and tuning out the media. Turn off the television. Stop reading the news about the market. The more you can do this, the better your finances will be.
Not Paying Off Credit Card Debt
Another mistake people make is treating their credit card like an IOU. They buy things and they worry later how they are going to pay for them. They quickly find themselves in credit card debt and have a hard time breaking the cycle.
When you buy on credit, you need to have the money for the item so you can pay the statement in full when it comes. If you have a hard time doing this, you have two options.
First, switch to all cash. Learn to control your spending that way. In time, you might want to test things out with credit cards, but you don’t have to. You are free to stick with cash.
Second, cut out all spending on your credit card except for one thing. When I got out of credit card debt and was learning to use credit wisely I only charged groceries. I budgeted for food each month, so I knew I had the money to pay the bill in full.
Avoiding Communication About Money
One of the biggest reasons why people get divorced money. You buy your things, your spouse buys his or her things. Then the bills come and you have a heart attack. Then you fight over this and nothing gets solved.
To overcome this, you need to have conversations about your finances. The more open you are about money, the better things will be.
For us, we have a meeting once a month. I handle the finances, but talk things through with my wife so she knows where we stand. If things happen and we are overspending or need to rework the budget because of an issue, we have a conversation before the typical monthly meeting.
Now, some of you might tell me that your spouse has zero interest in the finances. I don’t care. You still have to talk things over. There are many reasons for this. First, what happens when your spouse is ready to retire and you financially cannot afford for her to do so. She is going to be upset. If you had kept her updated along the way, it wouldn’t be an issue.
Second, what happens if you pass away suddenly? Your spouse is clueless about the bills, investments and savings. Keep them clued in to your financial lives and life will be easier.
Going Without an Emergency Fund
When you don’t have an emergency fund, your finances blow up in your face when life happens. And we all know life happens. You end up putting things on your credit card and then are a slave to monthly payments and interest charges.
To overcome this problem, you need to build up an emergency fund. It should be around 9 months’ worth of your living expenses. This can be a large amount to some, but trust me when I say it is worth it. You will be so thankful when something happens and you have the cash to pay for it.
To help you save, break the savings into smaller steps. Looking at a full 9 months’ worth of expenses to try and save is overwhelming. Looking at 1 month might even scare you. So try to save $500. Then try to get to $1,000. Make it a game and you will enjoy the ride.
These are only a handful of the money mistakes we make. I’m guilty of some of them as I am sure some of you reading this are guilty too. That is OK. The goal here is to learn from others mistakes so that we don’t repeat them.
The smarter we can be with our money, the greater the chance we have to reaching our financial goals and not having the stress of money weigh us down.