Now, I know we’re not all financial wizards, and retirement may seem like a distant dream to a lot of people out there, but the average person makes a few financial mistakes that can end up costing them thousands, tens of thousands, or even hundreds of thousands of dollars over their lifetime!
By avoiding these mistakes, you can plug that hole in the bucket, and stop money from dripping out of your bank account without you even realizing it. So, in this article, I’m going to tell you the 7 most common financial mistakes that people make so, hopefully, you can correct them and keep your money where it belongs: in your pocket!
These are the 7 most common financial mistakes! Let’s go!
#1: Not Having a Plan
If you think that one day you’re going to wake up and there’s going to be a bunch more zeroes in your bank account, I’m sorry to tell you, but you’re wrong. It is so important for you to make a financial plan. It’s the only way that you’re ever going to get your financial position to where you want it to be.
Start by setting out what your goals are. Where do you want to live? Do you want to have kids? What kind of insurance will you need to pay for? And then estimate how much your living expenses will be in, say, 10 years.
From there, look at your income and your current expenses. How much are you able to put into your savings every year? How many years of working will it take you to reach your financial goal through saving and investing? In what ways can you get there quicker?
Now, we have a whole video on the best money management apps, which you should check out. But, in a nutshell, get an app like PocketGuard or Mint that helps you budget your money and track your expenses. You’ll watch your unnecessary expenses go to zero, and your financial goals get closer and closer!
The next mistake that people make also results from not having a plan and not considering the future of their finances. But, it’s a mistake that’s entirely too common in the United States.
#2: Living Paycheck to Paycheck
The U.S. household personal savings rate was 13.7% in 2020, which is up from 7.6% in 2019. So, last year definitely saw an improvement in Americans looking to save their money rather than spend it as soon as they get it. Unfortunately, far too many Americans are still living paycheck to paycheck, giving themselves zero wiggle room and zero financial security.
Once again, it is so important to track your spending, and if you can cut out just one or two expenses, you might be able to save enough money to give yourself somewhat of a security net. If you cut out $20 worth of expenses per week, you’re looking at over $1,000 worth of savings per year, and that $1,000 might just get you out of a jam in a sticky situation.
If you’re living paycheck to paycheck, then you rely on every penny of your paycheck. And if for some reason that paycheck should not come (like if you lose your job in a global pandemic), then you’re going to be in hot water.
No one said saving was easy. We all like to buy things we can enjoy, but if you can find a way to save up some money by budgeting and give yourself a financial safety net, you’re going to be so much better off.
But what’s even worse than your savings being at a flat zero? Being in the negative! That’s right, I’m talking about debt!
#3: Living on Credit
In 2020, Americans paid off $82.9 million in credit card debt, which was a record year. Good for us! However, the debt problem is far from solved. Collectively, we still owe nearly $1 trillion to credit card companies, with that number growing all the time. And why is that? Because people don’t know how to use their credit cards the right way!
If you’re confused about that little piece of plastic in your wallet and why your credit balance has gone through the roof, please go check out our video about your credit score is so important. But, for right now, let me make this easy for you.
Rule #1: don’t spend more than you have. If you buy something on credit expecting to pay for it when the next paycheck comes in, then you messed up. What if that paycheck never comes? Boom! You’re in debt.
Rule #2: Always pay down your credit balance in full! Don’t let that balance balloon and start collecting massive amounts of interest! The longer you leave that credit balance outstanding, and the higher it grows, the more interest you’re getting charged. That’s money straight out of your pocket!
Next up is another sneaky way that money gets siphoned out of your bank account. Look out for those recurring payments!
#4: Recurring Payments
How often are you really ordering stuff off Amazon? Do you really still need that subscription to Prime? Why are you still paying for Disney Plus when you’ve been watching nothing but Hulu all year? These days it seems like even buying a pair of shoes comes with a subscription that requires you to make a recurring payment, but do you really need all these subscriptions that you’re paying for?
A lot of people sign up for a subscription with automatic payments and just completely forget that they’re paying for it, month after month, year after year. Read your bank statements, people! If you see a subscription fee to The New York Times and you haven’t read a newspaper in years, stop paying for it!
The same goes for anything that you don’t really need to pay for! Keep that money in your pocket, even if it’s only like $3 a month. It adds up! Everyone open a new tab right now or go to your mobile banking app and read through your bank transactions from the last year. Look out for those recurring payments and get them canceled!
Now, forgetting about recurring payments is easy, and I totally understand it. But this next mistake, well, this is definitely one I could see myself making.
#5: Buying a New Car
If you didn’t know, I love cars! And I’ve been guilty of spending more money on cars than I probably should, from my Ideal 996 911 to the Jeep Wrangler I just bought for my fiance. But, if you’re in the market for a car, it’s important to buy a car the right way.
Understand that a car loses value the second you drive it off the lot. And if you’re using financing and not paying for your new car in cash, you’re actually paying more than the ticket price with all the interest that’s going to build up. That means you’re paying interest on a depreciating asset, widening the difference between the value of the car and what you paid for it. Then, when you go to sell it in two or three years as most people do, you’re looking at a huge loss.
Fortunately, there are ways to buy a car that won’t lose you any money at all! Don’t believe me? Hop on over to our Ideal Cars YouTube channel and check out all the different videos about how to buy a used car the right way. Hell, if you buy the right car, you might even make money when you go to sell it!
I know some people have a stigma against buying a used car, but the truth of the matter is that you’re going to have a way better chance of breaking even on your investment. So, look to the used market and find something you like! You might just find a sick set of wheels that you can drive for free!
But, regardless of what kind of car you’re going to drive, be absolutely sure to get it insured. The same goes for medical, dental, home, and everything else.
#6: No Insurance
Now, I know we’re talking about saving money here and financially savvy people like to find every way possible to cut out unnecessary costs. But, trying to save a quick buck by not paying for insurance is just not something you should ever do. Sure, you’re going to save yourself from paying that premium every year, but what happens if your home catches on fire? You’re going to save a huge amount of money if you have homeowners insurance. What happens if you develop a terrible toothache and suddenly you need dental work? Paying out of pocket is going to cost a massive chunk of change!
Protect your health and your wealth, get insured, and give yourself peace of mind against the unforeseen. Believe me, if you don’t, there will probably come a time when you’ll be kicking yourself for it.
But, it’s not only important to protect your wealth. If you have some money saved up, why not grow it into even more?
#7: Not Investing
If you don’t make your money work for you by putting it in the market, you’re never going to be able to stop working. There’s a reason that wealthy people are always talking about investing. It’s the best way to grow your wealth!
Look into retirement funds or employer-sponsored plans to get your money into a place where it can grow! Warren Buffet says the S&P 500 is the best place to invest your money, and I think we can trust his advice.
Whatever you do, start learning about investments, understand the amount of risk you can tolerate, talk to an investment manager. Just don’t let your excess cash sit there and collect dust. Get it in the market and watch it grow.