The road to financial freedom is littered with potholes, but you can make your journey a little smoother if you avoid these common financial mistakes.
Mistake 1: We have no idea where our money is going.
Quick, how much money did you spend on groceries last month? How much did you shell out for entertainment, clothes, or dining expenses?
The sad truth is that most of us have no idea of exactly where our money goes. Of course we vaguely remember how much we paid on the mortgage or the car note, but pressed to explain where the rest of our cash disappears to, we don’t know.
Here’s a suggestion. Track your spending for thirty days. Record every single cent you spend. You’ll be surprised at how much you shell out for small items like coffee, videos, books, vending machines, or eating out. In the process you’ll quickly identify new ways to save cash.
Mistake 2: We fail to give each dollar a destination.
Control your money or it will control you. Too few of us take real control of our financial lives. We spend without having a plan in place.
Try this. At the beginning of each month sit down and create a budget. Tell your money exactly where it’s going. When each dollar understands its mission, your financial life will tend to fall into place.
Mistake 3: We throw away our hard earned money without even realizing it.
We have more than we think. We simply waste a great deal of it. Everywhere you look we pay more than we need to.
All of us can find ways to lower our car insurance or home owners insurance premiums. Refinancing our mortgages would save many thousands of dollars a year. Ditching unused or unnecessary services would do the same.
And fees may be the biggest money drain of all. According to Bob Sullivan, author of
Gotcha Capitalism, American families pay close to $4000 a year in fees alone.
Fight back. Switch from fee infested banks to low cost credit unions, for instance, or sign up for automatic bill pay to reduce your chances of incurring annoying late fees.
Cut the financial fat from your life and you’ll find yourself with unexpected windfalls.
Mistake 4: We fail to plant a harvest.
Money is like a seed. We can either eat it all now, or save some and plant it for a future harvest. Unfortunately, our consumption based society makes it all too difficult. We’re more likely to purchase a new Apple iPad than invest in Apple stock.
The wealthy understand the need to make their money work for them. We need to do the same. Set a small portion of your income aside in order to plant a future harvest. Invest in stocks or mutual funds. Contribute to your ROTH IRA or 401K plan, or pay off your high interest credit cards.
A penny saved or invested today becomes two or three tomorrow.
Mistake 5: We give in to the “I deserve it mentality.”
“But I deserve it.” How many times have you told yourself this just before whipping out your credit card. You work hard. You should be able to buy what you want, but most of us find ourselves succumbing to the “I deserve it mentality” far too often.
Yes, an indulgence every once in a while is fine, but remember what we truly deserve is a well-funded retirement, a debt free life, and financial freedom.
Mistake 6: We don’t make time for our money.
We spend thousands of hours obtaining training or education to acquire our jobs, but how much time do we spend learning how to effectively manage the money we bring home?
Invest in your financial education. You work hard for your money. The least you can do is set time aside to learn how to make the best use of it.
Devote an hour a week to your financial success. Use the time to create a budget, negotiate lower insurance costs, or track your spending. Alternatively, use the opportunity to learn about the stock market, investing, real estate, starting a business, or financial management in general.
Mistake 7: We follow the crowd way too often.
Our financial decisions are often influenced by others. We purchase the latest fashion just because everyone else is wearing it. We justify the need for a smart phone by telling ourselves that everyone else has one.
A funny thing happens when we follow the crowd. We lose perspective. We forget to think for ourselves. We stop challenging the conventional wisdom. If others are doing it, it must be the right thing to do.
As a result we often pay a heavy price. Remember it was the crowd that said home values would skyrocket forever. It was the crowd that convinced us to buy houses with no money down. The crowd made it seem normal to purchase a new car every four years, and it was the crowd that convinced us that debt was no longer a four letter word.
Sometimes it pays to think for ourselves, to do our own homework, and to make our own decisions, instead of being influenced by the mindless crowd.
BMWK, what are some of the financial mistakes you’ve made? How would you advise others to avoid the pitfalls that tripped you up?