Have you made a lot of money mistakes in your life? I know I have! In fact, you may have made mistakes that you are ashamed to admit. But here’s the truth…it’s time to turn those mistakes into real lessons. Instead of pretending that your money mistakes never happened, own them and learn from them! Your biggest lessons in life sometimes come from your failures and missteps. And that’s totally okay! The good news is that if you share your mistakes with others, they are less likely to follow in your footsteps. Below are 10 money mistakes that you should avoid.
1. Skipping budgeting for a month.
Look, I’ve been there before. There are times when you just DON’T want to budget. Either it’s too much work or you just completely forgot about it until 5 days after you get paid. But let me tell you that skipping your budget is a slippery slope! The more often you skip, the more likely you are to fall back into the no-budget life. And I don’t know about you, but when I skip a budget, I spend like crazy! So even if payday has come and gone, don’t skip your budget. Even if you end up just writing a mini-budget, do it! A budget allows you to be in control of your spending and sets you up for success!
2. Failing to set financial goals.
You wouldn’t embark on a cross-country road trip without the help of Google maps. In fact, chances are you would plan out your stops, know which direction you’re headed, and have a plan on when you want to arrive. The same is true for your finances! Setting financial goals is key to reaching financial success in the future. (Psst. Haven’t ever set financial goals? That’s okay! I’ve got you covered, friend. Click HERE to read all about how to set and reach your money goals). Consider writing your goals out and posting them in a place that you go to every day. My favorite place to post my personal goals is inside my closet. It’s a place that I go to each day, but it’s not somewhere that my guests visit!
3. Cosigning a loan.
Say it with me. “I will not cosign a loan.” I know that it might seem like a good idea to cosign a loan. You feel like you’re helping someone out who just needs a little bit of support. And they sat you down and promised that they would make all the monthly payments on time. But the truth is that cosigning a loan is setting yourself up for giving away control. If the person that you cosigned the loan for is late or misses any payments, then it affects you! If someone cannot get a loan on their own, chances are likely they aren’t financially ready to take on more financial responsibility. Find a nice way to say no, and just don’t do it.
4. Not setting aside enough money in savings.
I know that setting money aside in savings isn’t the most fun thing to do. In fact, I know that you would probably rather go buy a new computer or make a Target run with that money. But building up a decent savings account will save you when an unexpected expense comes up. It’s SO nice when you can pay for unexpected car repairs, medical bills, or house repairs that come out of nowhere. What’s even better is that you aren’t forced to use a credit card and rack up more debt!
If you’re just starting to pay off debt, then you’ll want to still have money set aside in savings. It doesn’t have to be a ton, but enough to get by just in case an emergency takes place. I recommend at least $1,000 per person. Once you’re debt free, you can increase your emergency fund to 3-6 months worth of expenses. Want to know more about setting up an emergency fund? Then head on over to Emergency Funds: Your Questions Answered.
5. Putting unnecessary expenses on credit cards.
I was hanging out with a friend the other day who just started budgeting in the past year. She was telling me about how much their money habits have changed over time. She said that just a year ago they would go out to dinner and charge it to their credit card when their checking account would run low. So instead of changing their habits, they continued living the lifestyle that they wanted despite the fact that they didn’t have the money to support it! If credit cards are a trigger for you when it comes to spending money, then it might be time to put them away or cut them up!
6. Getting a car loan that’s outside your means.
When I bought my first car, there was no way I could pay cash for it (we also weren’t super concerned about our finances at the time). But I know that even though I was financing a car, I did do ONE thing right! I kept my car payments reasonable. When I walked in, I knew exactly how much I could afford. And then guess what! I bought a car that was even less than that amount. Don’t walk into to trap of getting a car loan that’s way more than you can handle. And if possible, save up to buy a car in cash (that’s what we’re doing!).
7. Not knowing where your money is going.
You know the saying “Ignorance is bliss?” That’s how I used to feel about money, but I see now that this is a flat out lie! There was a time in my life that I would happily spend money without a care in the world. I would even avoid checking my bank account balance because deep down I was terrified of what I would see! I didn’t want to admit to myself that I was blowing through money and spending recklessly. There was no way I could tell you how much money I was spending on any given category. Instead of avoiding your truth, face it head on! Track your finances to avoid this major money mistake!
8. Using student loans for fun.
If you’re currently still in college or plan to help a child pay for college, then this one is a BIG one! Do not, I repeat, do not use student loan money for fun trips, activities, and living. I’d love to stand tall and tell you that I did not make this exact mistake, but that would be a lie. Nope, I took a fully funded trip to Europe all on student loan money. Now here’s where you’re probably thinking that I was studying abroad. It’s so sweet of you to think that I was off learning and going to school. But that’s also not true. I went on a 25 day trip across 11 countries courtesy of my student loans.
At the time I was not concerned. In fact, I was thrilled that it was “so easy” to take this trip. It wasn’t until I later realized just how that money gained interested and tacked onto my original student loans. If you want to take a trip like that, pay for it in cash. Take it from someone with experience, it’s not fun coming home to that loan waiting for you.
9. Buying a home that’s too expensive.
Many people believe the lie that they can afford a mortgage payment that is much higher than is actually possible. When my husband and I were buying our first home, we were told that we were qualified to purchase a home that was honestly way too expensive for us! In fact, there was NO way we would have enough money to pay for our mortgage, work on paying off our debts, AND daycare! Don’t fall into the trap that you can afford a mortgage payment that exceeds 25% of your take-home pay. The truth is that as the years go on, your property taxes are likely to increase which means that you’ll be sending more money to escrow each month. And this increases your mortgage payment each year! Do yourself a favor and buy a home that is a reasonable price for your budget to avoid this money mistake!
10. Getting behind on bill payments.
It’s easy to get overwhelmed by a constant stream of bills that never seem to stop. There have been times when I’ve opened a bill, felt lost, and just set it aside in a basket. I promised myself that I would “take care of it later.” Instead of actually dealing with the problem, I cast it aside. I let the bill sit and the due date pass. And just like that, I received another notification in the mail. It was my little reminder that I was not dealing with my finances like I should. I know that it might seem easier to let the bills stack up. You feel like you don’t know how to handle the problem. You are lost on what to pay first. But casting your bills aside and promising to deal with them later is not helping! Instead, set aside time every few days (or even just once a week) to pull out all your bills and take action on them!
We all make money mistakes. No one is perfect! And no matter how hard you try, chances are likely you’ll have a misstep in your financial journey. The good news is that these missteps are usually where we learn our best lessons. And if you’re willing to share those lessons with others, maybe they won’t make the same mistake!
Need help along the way?
If you know me personally, then you know that I have a passion for teaching people how to budget, save money, and pay off debt. And I’ve created a FREE email course that will help get you started on this budgeting journey! Plus, it comes with AMAZING free printables to help you be successful right off the bat! Sign up below!