Budgeting

6 Money Mistakes to Avoid

September 24, 2021

We aren’t machines that will always choose the mathematically correct option. The great news is we don’t need to be!

We aren't machines that will always choose the mathematically correct option. The great news is we don't need to be. Here are 6 money mistakes you should avoid.
#moneymistakes #personalfinance #debtfreedom via @moneygremlin
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6 money mistakes to avoid
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Managing your money is so important, but it can definitely feel overwhelming sometimes. It’s inevitable that over your lifetime you will make some mistakes. That’s fine; you’re human! Learn from those mistakes to avoid them in the future. Below are 6 money mistakes to avoid.

1. Not knowing your financial truth

If you haven’t been paying attention to your finances there’s a good chance they’re in a less than ideal state.

I remember the day I added up all my debts… wow did I cry. Seeing the sum in it’s entirety was shocking (>$100,000). I had no assets at the time, so my net worth was just a massive, terrifying negative number.

My debt was scary enough that part of me wanted to just ignore it’s existence!

Should I just bury my head in the sand? Pretend I saw nothing?

Deep down though I’d already known it was bad. I’d been carrying that stress around for years. Tallying it all up felt like hitting the release valve on a pressure cooker.

As painful as it can be, seeing the truth of your numbers allows you to confront them and make a plan.

Say you have $10,000 in debt (peanuts compared to mine!) and want to pay it off in two years. Perhaps that sounds impossible.

However, creating a plan can make it feel achievable.

Paying off $10,000 requires $13.70 a day. Or $96.15 a week.

Can you come up with that extra $100 a week? Then in two years you can achieve your goal!

Improving your financial situation is more like a marriage than a tinder date. It’s going to take some commitment.

Love yourself enough to know you deserve a better situation, and be disciplined enough to work for it!

2. Not following a budget

Ah, the dirty B word: Budget.

Budget’s have such a terrible reputation.

Restrictive. Do not work. Time consuming.

Other bloggers literally write articles about why budgets suck.

Budgets clearly need a new PR person.

I disagree with all the hate about budgets. I think they DO work and can actually lower your stress.

Think of a budget as your spending plan: You pre-decide where your money will go, then get to spend it stress free! I even include a fun fund in my budget.

One of the key tenets of good personal finance is spending less than you earn (how else would you pay off debt or save?). Budgets help achieve that.

If you’re reading this thinking “I’ve tried the whole budgeting thing and it didn’t work”….. try again!

Imagine if you tried walking once as a toddler, fell over, then decided this whole walking thing wasn’t for you. Are you going to crawl forever?

If a baby can learn to walk, you can learn to budget.

The key part of budgeting is not the creation of a budget, but actually following it.

I’ve written two articles about how I finally got budgeting to work for me.

  1. Creating A Budget That Actually Works
  2. and more importantly The Secret To Sticking To Your Budget

I used to follow a paper budget and have since upgraded to YNAB (which I LOVE and recommend). The premise of how I budget has stayed consistent though.

3. Not paying off your debt

Not all debt represents something you did “wrong”.

Sure, many people go into consumer debt trying to lease a luxury lifestyle that’s not within their means.

Don’t do that.

However, there are many other reasons people fall into debt. Tuition, medical bills, death, job loss. Life can throw some mean curve-balls that we’re not ready for.

Your debt may not be your fault, but it IS your responsibility. (Sorry).

It can be so tempting to either:

  1. Pretend it doesn’t exist (refer back to ostrich above).
  2. Simply pay the minimums.

Most people don’t have tons of money lying around to pay off their debts. This makes it so tempting to just follow the schedule provided to you. What kind of crazy person voluntarily pays extra??

A smart crazy person.

Let’s say you have a $5000 credit card balance at 18.99%. The minimum payment is $100.

If you pay only the minimum, it will take you 100 months (8 years and 4 months) to pay it off and you’ll pay $4978 in interest!

The interest cost almost as much as the original balance!

This is why it’s SO important to try to live within your means. The minimum monthly payment may not that look bad, but it will cost you so much money over time.

What if you decide to pay it off faster, and you add $100 more a month ($200 total).

You’ve now shortened the repayment period to 33 months (3 years and 9 months) and will pay $1414 in interest.

Paying an extra $100 a month saved you 5 years and 7 months of payments, and $3564 in interest!

Not so crazy now, huh?

Look at your budget and try to find ways of cutting back so that you can add extra amounts to your monthly debt payments.

What if you have multiple debts and aren’t sure where to even begin? Which debt payment method is best? Many experts suggest either the debt avalanche or debt snowball methods. In this debt article I explain both ways, and why I think a different method is even better.

Believe that you CAN pay off your debt. With consistent strikes it will eventually fall; it’s just a matter of time.

4. Spending every “bonus” that you get

Know what everyone loves?

A tax return.

Birthday money.

A lottery win.

Your bonus at work.

Any time you get money you weren’t expecting it feels incredible.

So what do most people do?

Celebrate! Buy that thing you’ve been wanting! Go on vacation!

While it’s not inherently bad to spend money on things that make you happy (in fact, I think you should!)… maybe don’t spend it all?

There’s a tendency to look at unexpected money as free money. Somehow the surprise of it turns it into Monopoly money. It seems there’s no consequence to blowing it in a way you might not spend your hard earned paycheck.

You know what else is amazing though?

Financial freedom.

That bonus money IS in fact real money, and it could help you achieve real goals. You know- the ones that made you want to improve your finances in the first place? That extra money could shave months off of the work you’d need to do!

What if you put even 50% of that money towards debt repayment? Or investments for retirement?

It may not seem as exciting at first, but making huge financial progress DOES feel amazing. It’s the kind of decision you feel great about the next day.

Do something that excites you with that money, but also put a good chunk into future you.

Live your best life, not just your best “now”.

5. Not saving for retirement

Anyone else sick of hearing “The best time to start saving for retirement is when you’re young”?

I know I am.

The reason it keeps being repeated everywhere?

It’s THAT true.

Time is your best friend when it comes to compounding and money for retirement.

Wealth building is a slow-cooker, not a microwave. The more time you give it the better it gets.

When I first started this blog and essentially had no readers, I wrote an article I adored because it picks on my older sister Melissa. I walk you through hypothetical scenarios of when & how much each sister starts investing. The results are quite painful for hypothetic Melissa 😉 Check it out here

The moral of the story is it’s extremely difficult to catch up if you wait to start investing. Compound interest is very powerful and will likely earn more per year than you at some point if you let it.

Can you imagine earning your current salary each year, but it’s just from interest? You don’t have to step foot in the office at all.

Let your money passively out earn you.

Like that thought?

Start investing!

6. Thinking personal finance is only about numbers

Personal finance is like dieting.

Most of us know the basics enough to know what we SHOULD be doing. We have great intentions. Then we see something shiny and our best plans get derailed.

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The truth is that good personal finance is simple, but definitely not easy.

Marketing wants you to part with your money. Your friends and family show off their purchases and make you question whether you should get “it” too. I’d even argue that our human nature wants us to upgrade and have something to flash. It’s the equivalent of a peacock flaunting it’s feathers. Who are we without our stuff?

Improving your financial situation is so much more than math. It’s going to require habit and behaviour change.

Certain things such as investing you can make easier by setting up automatic transfers. Simplify your finances by removing the decision each month and treat it like a bill that needs to be paid.

Variable spending is harder to manage. Much harder. You can set a budget, but will you follow it?

Take the time to ask yourself WHY you buy things. Are you trying to impress the world, or is it really for you?

Pay attention to how purchases make you feel a few weeks later. Remember how you felt like you just had to have that item? Now that you’ve got it, is your life better? Do you still feel satisfied? Or has your mind already moved on to the next shiny object?

We aren’t machines that will always choose the mathematically best option.

The great news? We don’t need to. We just need to make enough good choices to tip the scale.

In a few years your life can be in an entirely different financial place. It’s worth the effort.

What would you add to a list of 6 money mistakes to avoid?

We aren't machines that will always choose the mathematically correct option. The great news is we don't need to be. Here are 6 money mistakes you should avoid.
#moneymistakes #personalfinance #debtfreedom via @moneygremlin
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