Today we’re uncovering some of the most common money mistakes people make that keeps them struggling financially that we need to be aware of.
1. Buying things like a new car or a boat, one of the most common money mistakes
Many people buy new cars accepting that $4,500 per month payments when their income is still low.
Think about this, if a person is making $3,000 per month and has a $500 monthly payment, not including the down payment. That Car is taking 17% of their income.
That’s not including gas, insurance or maintenance which can make the car take up to 20 to 25% of their income.
That is a quarter of their income, by giving up a quarter of their income they also give up opportunities to achieve their financial goals.
Think about it, in five years they’ll be spending $30,000 to pay off the car, $30,000 they could’ve added to their investments portfolio, done a small real estate deal or put away for retirement.
Of course, A lot of people are passionate about cars but just remember buying an expensive car will slow down your financial goals because you’ll have less money and freedom to put into achieving your goals.
Especially at the beginning when the income is still low.
2. Living paycheck-to-paycheck
I know a lot of people are going to say how can you say that?
Most people don’t live paycheck-to-paycheck by choice and I get it. There are many people in a very tough situation. so that would be the number one goal to get out of the paycheck to paycheck life and start putting away little by little even if it’s just 5% of their income.
But there are other people who could save some of their money who don’t and choose to live paycheck-to-paycheck and believe it or not, there’re many people who do that.
Now with that said, we cannot predict the future and it is always a good idea to have even a little reserved money to keep us afloat in case something happens.
Whether it’s a car repair, losing a job or any other thing that life throws at you, having a little reserve will make your life much easier.
3. Not planning your finances every month
What if I asked you where did you spend your money last month?
Do you have an exact answer? If not you’re going to find this very useful.
It is very easy just to get a paycheck and start using the money without any structure. The problem with that is we become clueless about where our money is going and it makes it harder to plan our financial future.
Before the month begins it’s always recommended to plan ahead your monthly budgets.
A simple way to do this is to split a piece of paper in 4 quarters.
On the upper left side, you can write your income. Every source of income you have and how much money you will be making that money.
On the lower left side, you can write how much will go into your savings and your Investments portfolio.
It is important to figure out all of your expenses for the month and maybe adding a little buffer for unexpected expenses.
Also, what will be your spending budget? The budget that you will be using for fun and how will you use it? You can write those things on the upper right side.
Having a structure to your finances will make it much easier to keep track of where your money is going and figuring out which ones to modify to be able to reach your financial goals.
If you want to take it to the next level on the lower right side you can write out your net worth. How much money you have in the bank and Equity or Investments? And update it every month.
This will give you an indication of whether you are moving forward or not.
If you want to take it even further you can also write out next month’s income goal. This is different than net worth, this is monthly cash flow in, this will push you to keep hustling and keep expanding your income.
4. Becoming a slide spender
so it’s payday, time to munch out in the most expensive restaurants, buy unnecessary Things, run out of money and then wait for the next paycheck and do the same thing over again.
If this sounds appealing to you then you might be a slide Spender.
The reason we call it slide spending is: because the process looks like a slide. People work to climb the ladder and earn the money, once they get the paycheck they slide all the way down to zero.
Then, they wait for the next paycheck and this cycle is repeated over and over again.
We see this all the time with many people, and it’s very financially dangerous.
That is why planning your monthly Finances ahead of time is very important.
This way you can assign money to each one of your categories and still enjoy yourself.
It can actually be beneficial to assign yourself a fun budget and not just put all of your money into savings.
Depending on your goals and your personality type not satisfying that little fun person inside of you can actually get in the way of saving cash because if that little fun guy inside of you comes out full force he or she might actually sabotage your efforts.
Also, if you assign a percentage of your income to spend and have fun with you have a bigger incentive to increase your income because you’ll have more money to have fun with.
5. Using credit cards when you are yet to have the money
Let’s say that you have money coming in next month so you begin putting in some stuff on your credit card because you’re going to be able to pay it off next month.
This can cost two big problems, one you’re putting yourself behind if you spend money that you don’t have yet you used next month’s money to pay this month’s credit card bill.
Now, you’re behind because if you use next month’s money to pay for what you spent today you might not have any more money next month for your expenses and guess what you’ll be using your credit card that you just paid off again to pay for next month’s expenses and again you are behind.
This is what we call living on the negatives. You do not want to live on the negatives.
And second, if for some reason you don’t get the money you expected, now you’re in trouble because you will still need to pay for what you’ve spent and now with high-interest rates.
6. Not having a financial plan, one of the most common money mistakes
We focus on growth, on continuously getting better and that includes our finances.
We don’t want to stay the same year after year.
Not having a plan whether is getting out of debt or increasing your income can leave us in struggling Place years to come.
It’s always a good idea to sit down and write a plan to reach your financial goals.
Whether that is to increase your income to a certain level, getting your savings up or getting out of debt, taking the time to figure out a plan that you can start executing today will help you move toward your financial goals.
Conclusion, common money mistakes
These, in my opinion, are some of the most common money mistakes that most people aren’t aware of. I just want to say that you should enjoy life and work for your future, avoiding these common money mistakes can help you invest more in your retirement fund, start a new business and achieve financial freedom.
If you’re serious about saving money I recommend taking this course Hack your way to freedom: The psychology of saving money
If you’re interested in creating a new income source these are 10 Legit ways to earn money online and make a living from your home.