5 Common Money Mistakes – and How to Avoid Them
Being good with money doesn’t come naturally to most, due in part to a lack of education early on in life. Few people talk openly about financial management with friends or family, and that means common money mistakes and how to avoid them are widely unknown. Instead of knowing what to sidestep in the world of personal finance, most people pick up an understanding of what it means to be good with money by countless trials – and errors. While that’s one way to go about it, a more sound strategy is to understand the most common money mistakes you could encounter throughout a lifetime, and the steps you can take to avoid them altogether.
#1 Failing to Budget
Everyone hates the “b” word in financial management, but it is by far one of the most important factors in being good with your money. You have to gain an understanding of what money is coming in (your income) and what is going out (your expenses) before you can take any smart steps toward any of your financial goals. Many people fail to budget because they think 1) it will all work out at the end of the month, or 2) it takes too much time to do it right. But the truth is it is far too easy to overspend and miss important payments to debt or savings when a budget isn’t in place, which could cost you significantly in the end. The good news is that the time it takes to get started is minimal. A quick online search returns hundreds of tools available at little to no cost to help you create and maintain a budget of your own. Before setting your sights on any financial goal or a big purchase, think budgeting first.
#2 Paying Unnecessary Fees
One of the most common money mistakes that people often overlook involves excessive fees. Bank accounts, credit cards, and investments all come at a cost, and these charges are not always easy for an untrained eye to spot. Take the time to review your account statements to find fees that slowly chip away at your balances or add to your debt, and consider asking the provider of that account to lower or waive fees that seem unnecessary. If they are unwilling to do so, seek out alternatives that cost less over time.
#3 Skimping on Savings
Being good with money by avoiding common money mistakes is also directly tied to creating a savings plan. There are numerous ways to save month to month, above and beyond simply siphoning off some of your paycheck into a traditional savings account. For instance, saving could mean buying the items you need only when they are on sale, including clothes, groceries, or concert tickets. It may also mean contributing to your retirement plan through work or paying extra on your loan or other debt obligations to save on interest. Combining these savings methods month to month adds up to an impressive amount over time.
#4 Instant Gratification
One of the more costly common money mistakes to avoid is giving focusing solely on the present. Of course, it is important to treat yourself here and there, but only when your budget allows you to do so comfortably. Avoiding this common money mistake is difficult given the world is literally at your fingertips with online shopping and mobile access to just about anything your heart desires. To keep the need for instant gratification at bay, give yourself a breathing period of one or two days when you see something you want to buy. Consider if it adds to your overall financial picture or takes away from it, and then make your purchase decision after fully thinking it through.
#5 Not Having a Backup Plan
Creating financial goals and working toward achieving them is a challenge for just about everyone, but it gets more difficult when you encounter a bump in the road. An emergency could pop up at an inopportune time, leaving you at a loss financially. Being good with your money means having a Plan B for when the unexpected strikes. Create an emergency fund, know your options for quick cash loans, and be willing to have flexibility with your plan along the way.
If you’re wondering how to avoid money mistakes, start with learning the most common pitfalls individuals face. Begin with your budget, then work your way toward uncovering excessive fees, developing a strategy for savings, and keeping feel-good purchases to a minimum. Always take the time to understand your options when life throws a financial curveball, and you’ll be well on your way to avoiding money mistakes that could cost you.