We all make money mistakes.
Sometimes those mistakes are the result of not knowing what you should be doing with money. Sometimes those mistakes are the result of not caring enough to change your money habits.
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Don’t let your past habits lead you to continue making money mistakes. If you are making one or more of the following money mistakes, dedicate some time (and money) to fixing them.
Not Knowing Where Your Money Goes
It’s easy to wonder at the end of each month where all your money went. You know you made at least some money this month, but somehow all of it has disappeared.
We’ve all been there.
The good news is that this problem is easy to solve and it doesn’t take any extra money. Actually, you’ll be amazed at how much more money you have when you know where it’s going.
Track Your Expenses
There are so many apps out there that can help you track your expenses.
I, personally, use EveryDollar (the free version) because I like entering my expenses manually. It forces me to think about every purchase that I make and regularly view how much I have remaining in each budget line.
If you’d prefer to have your expenses automatically entered, I would recommend either Mint or the paid version of EveryDollar. I’ve used both and they both work well.
Create a Spending Plan
This is taking it a step further, but, instead of just watching your money go wherever it wants, put aside a few minutes each month to create a spending plan (also known as a budget).
EveryDollar makes creating a spending plan incredibly easy. After you’ve set it up one month, you can just copy it over to the next month and then make any necessary changes.
My husband and I sit down together at the end of each month to create a spending plan for the following month. This is, by far, the biggest factor that has enabled us to pay $1,700 towards debt each month.
Not Having an Emergency Fund
Something will go wrong. Emergencies happen and you need to be prepared for them.
If you don’t have an emergency fund set up, you will constantly be using a credit card to pay for unexpected expenses. Please believe when I say that creating debt is the best way to either become or remain poor.
But when you have an emergency fund, those “emergencies” don’t seem so insurmountable and you won’t have to take debt to pay them. Your car needs new tires? No problem. The IRS just informed you that you owe $600 in taxes? No problem.
If having an emergency fund seems impossible, start small. Put every extra cent away until you have $500 in your emergency fund. Then continue to save until you have $1,000.
If you have debt, $1,000 is a great starting point for your emergency fund while you work to pay off that debt. If you’re debt-free, aim for an emergency fund of three to six month’s expenses.
Not Paying More Than the Minimum on Your Debt
There are two problems with not paying more than the minimum payments on your debt: (1) you will be in debt for a very, very long time and (2) you will end up paying way more because of interest.
If you have debt, first create that $1,000 emergency fund, and then completely commit to paying off your debt as quickly as possible. Pay as much as you can towards your debt every month until it’s paid off.
Decide on a debt repayment plan – should you pay the debt with the highest interest or lowest balance first? – and then go all in. Pay off your debt as quickly as possible so that you can use that money for other things.
Not Saving for Large Purchases
I recently bought a car in cash. I won’t say how much it was, but it wasn’t a tiny amount of money. You might be thinking, “Nope. I don’t need to buy a car in cash. I’ll just take the monthly car payment.” But monthly car payments are just a fancy (societally acceptable) version of debt. It’s time to jump off that bandwagon and decide to really hate debt, including car loans.
I knew that I would need a new car soon because I had bought my last car for $900 and it was 21 years old and basically falling apart. So a couple years ago I started setting aside $300 for a new car. And, sure enough, when my car finally heaved it’s last breath, I had enough money to buy a new (used) car without taking any more debt.
If you have a large upcoming purchase, put some aside money for it. Figure out when you will need to buy it and then divide the total cost by the number of months you have until then. Then add that amount to your monthly budget.
Planning ahead and saving for large purchases is the best way to stay out of debt.
Not Contributing to Your Retirement
This isn’t a mistake if you have debt; if you have debt, you should be focusing on paying it off. But if you are debt free (not including your mortgage), then you need to be contributing to your retirement.
Don’t think that because retirement is a long way off, it doesn’t matter yet. It does matter and the younger you are when you start investing, the more money you’ll have in the long run.
So take some time to look into your retirement fund options and invest a little (around 15% of your income). A small investment now can have a substantial return later.
One Last Note
Much of what I’ve learned about finances, I’ve learned from Dave Ramsey, and he addresses all of these money mistakes in his book, The Complete Money Makeover. If you haven’t read it, I highly recommend that you do.
If you are making one of the money mistakes listed above, take it seriously. All of these things can have a huge negative impact on your wealth if they aren’t dealt with.