Having financial problems is something a lot of us encounter during our 20’s when we’re not financially mature and all we do is WANT WANT WANT. Before we finally wake up we’ve accumulated thousands of dollars of crippling debt! If we continue to make those common money mistakes by the time our 30’s roll around, we could be putting our financial future at serious risk. I know this to be true. IT’S EXACTLY WHAT I DID.
The older we get, the more financial responsibilities we have, and if we don’t learn how to manage our finances properly and actually think things through before acting on them, money mistakes are bound to arise. These mistakes in many cases take decades to repair and many people never get them repaired. If you want to avoid these crucial mistakes in the future, I’ve listed some things I feel will help you do that.
Using credit constantly instead of cash is a bad idea
A credit card is something useful to have on hand, because apart from the rewards points and the convenience, you also have the security of knowing that should you ever lose your credit card, it can easily be replaced, which often isn’t the case with cash. Credit cards are fantastic if used PROPERLY. Meaning whatever you charge during the month, pay off completely every month! DO NOT CARRY MONTHLY CREDIT CARD DEBT. This is the only way the math works in your favor! However, the trade off with credit cards is that it’s easier to overspend, which can lead to debt problems in the future. I also know this to be true. I’VE BEEN THERE DONE THAT.
Studies show that people who pay with credit cards spend MUCH MORE than if paying with actual cash. After all, it’s more convenient right? And it doesn’t hurt nearly as much as actually counting the bills directly from your wallet!
With the convenience of a credit card, it’s easy for people to purchase things they don’t necessarily need at prices they can’t afford. And if someone doesn’t pay off their credit card balances every month, not only will they accumulate debt with high interest charges, but this could eventually hurt their credit rating as well. Paying interest on anything is equivalent to FLUSHING YOUR MONEY DOWN THE TOILET! We’ve been conditioned to think this is normal and okay. But why not keep more of our money in our pockets? Hmmm, imagine that. What a great idea!
The solution? Learn to shop with cash, but keep a credit card for those big purchases you know you can pay off. By sticking to cash, you won’t find yourself relying on credit and you’ll protect yourself from impulse buying, which are two actions that can ease the slide into debt.
Only paying the minimum payment on credit cards
Using a credit card regularly and wisely will help us build a credit history, but if we’re not using credit wisely, we will find ourselves in a position where we can’t pay off our credit card balance every month. Then the charges and fees come. Don’t get me wrong, making a minimum payment is better than making no payment. But if this becomes a habit and continues you could be in for some serious consequences. And tons of wasted money that could actually be moving the needle for you in other places. ALWAYS move the needle in your favor and not the other way around. Common sense right? It’s something I lacked for years. Remember, MOVE THE NEEDLE in the positive direction!
The most obvious consequence of only paying the minimum payment each month is the interest piling up on the unpaid balance. With interest rates ranging from 15% – 25%, it can take you YEARS and in many cases DECADES to clear your debt and you can end up paying thousands of dollars in interest alone. For example, let’s say you have a $10,000 balance on your credit card, which has a 19% annual interest rate. If you only make the minimum payment, it’ll take you around 37 years to pay off your balance and during those 37 years you’ll pay around $19,000 in interest. OMG! I hear the non-stop flushing of the toilet as we speak!
Making only the minimum payment for a period of time could also affect your credit score. If you continue to use the card and only make the minimum payment, the accruing charges and interest will keep your balance growing every month, and this in turn will hurt your credit score as you use up the majority of your credit limit. Solution: CUT UP THE CARD. You’ve proven that you can’t use it WISELY. Again, been there done that.
If you want your credit score to stay in good shape, credit experts recommend not using more than 30% of your credit limit. The best way to do this is to ensure you either pay off your credit card balance or pay more than the minimum every month. This is SO IMPORTANT!
If you’re struggling to make more than the minimum payment on your credit cards, rest assured you’re not alone. Nonprofit credit counsellors are available to help you put together a plan to make sure that you can repay your credit card debt quickly, afford to live, and take care of your other financial commitments. Once you’ve successfully paid off your credit card debt, make it a habit to rely on cash and to use your card less often. I’ve been there and have made all these mistakes in my life. Hopefully you’ll take heed and be more financially mature than I was.
Living above your means
What does this even mean? Is it even a thing? You better believe IT IS and it will destroy your wealth building and KEEP YOU A PRISONER if you choose to do it! Today when we turn on the TV all we see is ads and images of people living extravagant lifestyles and we’re sucked into it all. There is nothing morally wrong with it but if you fall into the trap you will not have any money because you will OWE EVERY CENT TO THEM. It seems everyone is obsessed with keeping up with the Joneses. In the grand scheme of things, does it really matter who can go deeper in debt? LOL! These days it’s often possible to create the perception of living a cushy lifestyle, complete with a big house, fancy car and expensive vacations. With credit easily available, it may seem harmless to take out a loan to pay for a holiday, or to purchase expensive new toys on a credit card. If you have to charge Christmas, birthdays, or your vacation on a credit card or high interest loan, you’re definitely doing it wrong and need to reevaluate your life and finances! Once again, been there done that. Putting all that on a credit card may seem okay to you, that is until the bills start rolling in! Don’t spend all of 2017 paying for Christmas 2016. Why on earth would you do that??? Hear that? It’s the toilet flushing AGAIN!
Living beyond our means or ( AKA spending more than we make) is a money mistake a lot of us have made — AND CONTINUE TO MAKE
– because now it’s become such a bad habit that we often don’t realize (and at this point you must not even give a shit) we’ve overextended ourselves until it’s too late. If we’re not earning enough to fully cover our expenses, our lifestyle will catch up with us sooner or later, resulting in serious financial problems. And, if most of your income is going towards servicing your debts, you likely won’t be able to save for your retirement, or for emergencies, which we’ll discuss a bit further down. You have increased your prison sentences even longer.
Living within your means is an essential money management skill that will help you sidestep debt. Not only does it free you from money worries, but it also gives you the freedom to make choices in the future based on your desires instead of based on what you can afford. If you’re ready to start living within your means, start adopting some frugal habits. Here’s a great read Do you live a frugal lifestyle It’s easier than you think!
You disregard budgeting
Why don’t we follow some kind of budget? Are we so damn smart that we just don’t need one? Is that what we really think? BIG MISTAKE! This is a huge mistake most of us make. Again, been there done that. Without a realistic budget, you’re more likely to spend – and live – beyond your means because you won’t know how much you can realistically afford for rent, car payments, groceries, and other expenses. You’re just setting yourself up for failure. Even if you’ve worked it out and know how much you can afford, expenses always add up and typically exceed whatever we plan to spend. If you don’t follow a budget, your debt is likely to grow and may quite possibly result in money troubles in the future.
Most people choose not to budget because they think it involves limitations and deprivation. After all, how can you keep up with the Joneses if your limited right? LMAO! Is this you? In fact, a budget is a tool that will help you avoid all those things! Plain and simple, a budget is nothing more than a spending plan that maps out what your expenses are for the month, and how much you can allocate for each expense. This way, you get a clear picture of whether you’re living within your means and spending in a way that will help you get ahead in the future.
A budget shows you, in black and white, how much your living expenses are in relation to your income. If you discover that you’re spending well beyond your means, a budget will show you which areas you can cut back on so you can make changes and take control of your finances.
You save very little or nothing at all for your retirement
You may be working and earning an income now, but there will come a time when you’ll no longer be able to work – and it may come sooner than you think. A recent survey of 2,000 retired people revealed that almost 50% retired sooner than they planned due to circumstances beyond their control. So when the time comes for you to retire, will you still be able to support yourself financially?
When you’re young and you’ve just started out on your career, saving for retirement may be the last thing on your mind. BIG MISTAKE! The earlier you start, the better. I urge you to leain about COMPOUND INTEREST! It’s tempting to spend your hard earned money on things you can enjoy now, but in another 30 years or so, all those vacations you took and those expensive restaurant meals you enjoyed aren’t going to help you pay the bills when you’re retired. Let that sink in.
Although you should certainly treat yourself to things that bring you joy, it’s equally important to set aside some money for the future. If you start contributing to a retirement fund now, you’ll have another 30 years to let compound interest work in your favour. If your company offers a retirement matching plan, take advantage of it and make sure you contribute the maximum amount. It’s basically free money! If your company doesn’t offer a retirement plan, you can still start one on your own. Simply set up automatic contributions on each pay day (start out with 10% and gradually increase) to a separate account. By automating these contributions, you’ll get used to them and hardly even notice the money is missing from your checking account, and you won’t be tempted to spend it. If you happen to get a salary increase down the road, don’t forget to ratchet up your retirement contributions, too. Doing this at a YOUNG AGE will make you wealthy and GREATLY REDUCES your prison sentence!
You have no emergency savings
Unexpected expenses, BELIEVE ME, they’re coming. A leaky roof or a bursting pipe can flood a room, your vehicle may break down and need expensive repairs, or you or your spouse may come down with an illness that results in expensive medical bills. If you’re not prepared to handle these unexpected expenses, you can find yourself getting deeper in debt. If your income is just enough to meet all your expenses, when an emergency strikes you’ll likely end up borrowing money from family and friends, neglecting your existing payment obligations, or putting everyday purchases on a high-interest credit card, all of which will get you in debt. And it’s for this reason that saving an emergency fund is so important.
When you’re in a financial crunch, an emergency fund will give you a cushion to fall back on until you get back on your feet, so you won’t have to rely on credit to make ends meet. It can be hard to squeeze out a few dollars each payday to funnel into an emergency savings account, especially if you’re barely able to make ends meet. And if you find yourself in this situation now, building an emergency savings should be a priority: if you can barely look after your expenses now, an emergency can really devastate you financially. And trust me YOU WASTE MORE THAN ENOUGH TO FUND A EMERGENCY FUND.
The best way to start saving an emergency fund is to start small. Allocate a certain amount each payday into a separate savings account, and treat it as you would a bill: budget for it, and diligently make a payment into the account with every paycheck. Whether you’re contributing $5 or $50 each week doesn’t matter, what does matter is that you’re building up a financial safety net to get you through tough times.
Please feel free to leave your comments and offer your tips and strategies. After all, we’re all in this together!
Thanks for reading,