5 Common Money-Costing Mistakes
Are you having a hard time keeping your finances in order? It’s a common problem. Staying financially thriving is an ongoing battle made up of a series of daily decisions. But with the right money habits, you don’t have to worry about having enough money in the bank.
Here are five common money-costing mistakes and how to avoid them:
Mistake #1: Spending More Than You’re Making
Many people spend more money than they make. This one should be obvious. You probably know this, but you just don’t put it into practice. The secret to building wealth is living within your means. The problem is, when you feel deprived, you buy things to compensate. Over time, you feel entitled to things, so you keep buying them even when you don’t have the money for them.
You might see your friends taking exorbitant vacations, buying new cars, and making down payments on big houses and think, “They’re living the good life.” It seems like everyone but you is living the good life. You should know that spending beyond your means is never sustainable in the long run. Eventually, your bills will go up. Your credit card debt will rise. Meanwhile, you won’t be able to be happy anymore if you’re not spending. You’ll keep spending to satisfy yourself and end up in a vicious cycle.
There’s a simple remedy to this problem: be happy with what you do have. Spend less. You’ll experience greater financial freedom, which is much more gratifying than trying to keep up with what everybody else has.
Mistake #2: Making All Your Purchases With a Credit Card
If you’re like most people, you put almost everything on credit cards. Americans, in particular, rack up credit card debt instead of savings. According to a Bank Rate study, only 52% of Americans have emergency savings that exceed their outstanding credit card balances. That same study found that 24% of U.S. adults have more credit card debt than money in the bank. These are terrible statistics!
To avoid these problems, I’ve been using the same debt strategy for the last thirty-two years: if I can’t balance it, I have to save for it. If I can’t afford it, I can’t buy it. It’s that simple! There’s a difference between needing something and wanting something. One of the biggest money mistakes is mixing these two things up.
Needs and wants can represent two kinds of debt: good debt or bad debt. Good debt is investments like education or your house, which will appreciate over time. However, the only way that good debt stays good debt is if you have a strategy in place to pay it off. Bad debts are the rest of your debts—the debts that represent an overspending problem that needs to be tackled ASAP. Set goals to not add to your debt. Instead, put a pay-off strategy in place to get your finances back on track.
Mistake #3: Not Having a Financial Plan
Too many people don’t have a financial plan or strategy in place. You need to take control of your money and know where it’s going before you’ve even earned it. This may sound daunting, but it’s actually easy. Just implement a 50-20-30 plan. Break your income down like this:
• Allocate 50% to essential expenses such as transportation, utilities, gas, and groceries
• Invest 20% in financial priorities—your retirement, savings, and debt, in that order
• Use 30% to fund lifestyle choices (wants, not needs) like shopping, eating out, and vacations.
Be sure to track your spending so you know you’re sticking to this budget. There’s no one right way to do this. You can do it the old-fashioned way with a paper and pen or use an automated service to ensure you aren’t missing any of your expenses. You’ll see exactly where your money’s going and enjoy peace of mind because of it!
Mistake #4: Lying to Yourself about Your Finances
Stop telling yourself financial lies! It’s easy to lie about where you’re at financially because it makes you feel better about your bank account. Maybe you don’t look at your bills or financial statements because you end up feeling guilty about your overspending habits.
But telling yourself financial lies only makes matters worse. Your future self won’t take care of your finances. We all want to believe that things will get better for us in the future: we’ll get promoted, find a better job, or be given a raise. But there are never guarantees of any of these things. These lies can cloud the reality of your money habits. So, don’t assume you know what the future will look like. Think of where you are right now and build savings based on that.
Mistake #5: Underestimating Your Income Tax
Entrepreneurs are guiltier than anyone of underestimating their tax bills. We tend to invest every last dollar into our businesses. But if you do that, you’re not prepared when tax season comes around. Instead, make a habit of putting 30% of every dollar you make away for your taxes. Pay your estimated taxes on a quarterly basis, so when April 15 rolls around you’re prepared. This way, you also won’t be tempted to use the money that should go toward your taxes.
Once you start putting this money aside, you might find you’re having a hard time paying your bills. This probably means you’re undercharging for your services. Increase your prices to get back on track.
By getting rid of these costly mistakes, you’ll start having a healthier relationship with money. You’ll grow your business while protecting your assets. Let me know how you’re tackling your money challenges in the comments below. I can’t wait to hear what you’re doing!
Your Partner in Prosperity,
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