Bill Spring and I layout 7 money mistakes to avoid AND… we even include an 8th bonus mistake at the end of the podcast, which in my opinion, is the biggest mistake a person can make financially. These mistakes are the big ones!!! If you want to be intentional about building wealth, then you need to be intentional about avoiding these mistakes. Getting caught up in these mistakes can literally destroy you financially. All of these items are big mistakes but are not listed in any particular order.
Here are the top 7 money mistakes to avoid:
1. Taking on too much debt. Examples: Buying too much house: This means that the loan is way too much for a person to afford. Dave Ramsey recommends no more than 25% of your take home pay go towards your total housing payment which includes taxes, insurance, principal and interest. Buying too much car: In other words, buying a car you can’t afford. People too often buy new cars that they shouldn’t and have a hefty car payment every month that takes away from their ability to contribute to investments. Misuse of credit cards: Racking up debt on your credit card and then just making the minimum payment can cost you big bucks. According to Creditcards.com the average national credit card interest rate that you’ll pay is 16.15 percent. Yikes!!!
2. Unable to say no to friends and family that ask you for money. An example of this could be a mom who is kept broke because her adult son is mooching off of her. The mom feels obligated to support her son and the son is taking advantage of this. The mom needs to establish boundaries to eliminate the son’s dependence. It’s not wrong to help those in need, I encourage doing so, but don’t let giving get out of control and be aware when giving becomes enabling.
3. Taking on unnecessary risk. An example of this could be someone that does not have life insurance, health insurance, or disability insurance. The old saying “expect the unexpected” can really help you to avoid costly issues. Also, if you have a family or someone in your life that is dependent on you, you need to get life insurance. Sometimes employers provide these types of insurance. If your employer does then you need to make sure that the coverage is adequate for your family’s potential needs.
4. Not investing in a retirement. This is especially true if your employer offers a matching program. For example, if your employer matches up to 3% of your gross annual income. If you’re not making contributions to a retirement program, then you need to do so immediately.
5. Not having an emergency fund. I’m sure everyone has experienced an unanticipated expense. It could be a medical expense, a vehicle expense, or a housing expense. It could be anything! You need to have an emergency fund to protect yourself against unforeseen expenses. The biggest reason to do this is because you’re going to have to borrow the money, like put it on a credit card, in order to pay the unexpected expense. If that happens, you could be paying 16.15% interest! For your emergency fund you should have 3 to 6 months of expenses saved up.
6. Not considering opportunity cost. When you spend your money on something, you’re not able to spend it on something else. What does that translate to? It means when you blow your money on that third pair of running shoes (that you really don’t need) you’re giving up the opportunity to invest that money and earn a return.
7. Thinking that money is a mathematical problem and not a behavior problem. Let me repeat that… Thinking that money is a mathematical problem and not a behavior problem… This sounds illogical but it’s very true. Poor money habits are behavioral problems. In other words, being financially healthy means being disciplined with your money.
If you’re looking for financial help, reach out to a financial coach – like myself, take a Financial Peace University class, or look into the financial classes offered by your local Love INC organization.