Solve your money problems and reach your financial goals a lot quicker by avoiding these money mistakes.
10. Buying New
Do yourself a favor and resist the temptation to buy the newest, latest, greatest model of anything. This includes cars, cell phones, kitchen countertops and anything else that may come to mind.
Unless your kitchen countertops are badly damaged, you don’t need to upgrade them. In most cases, upgrading your kitchen counters is more of a “want” than a “need.” The same thing goes with upgrading your cell phone — unless you need to upgrade for work purposes, it’s a wise idea to keep what you have.
New cars lose a lot of their value as soon as you drive them off the lot. Not only that but you’ll pay more for insurance and registration for a new car than a used one. It’s better to get a used car in good running condition with very few miles on it.
As for everything else, you can always buy those items at a discount at consignment stores and even online if you shop smart.
9. Cashing Your Paycheck Right Away
If you can help it, don’t cash your paycheck right away. Holding on to it might keep that money from burning a hole in your pocket. That being said, it’s best to opt for direct deposit (if that option is available to you) from your employer.
TIP: Make sure you have a 401(k) or other workplace retirement plan in place, so your money is automatically deducted from your pay. If you don’t have one at work, set up your own individual account, and automatically transfer the money each month.
8. Overspending on Lottery Tickets
Who doesn’t want a chance to hit the jackpot? We ALL do, right? Unfortunately, your chances of actually winning are pretty slim.
Truthfully, the odds are significantly stacked against you. According to the Powerball website, your odds of winning the grand prize are 1 in 292,201,338. Yes, you could win, but think about all the money you’d be wasting if you were to keep trying and never end up winning.
7. Give Your Kids an Allowance
According to money management guru Dave Ramsey, parents set their kids up for failure when giving them an allowance.
“I just don’t like the word. Allowance kind of sounds like, ‘You’re not good enough, so I have to do something for you.’ It kind of sounds like welfare. Instead, [in my household] we called it ‘commission.’ You got paid for doing chores. Work? Get paid. Don’t work? Don’t get paid,” Ramsey told CNN in 2014.
His daughter Rachel Cruze agreed, noting that with the “commission” method, kids quickly learn that money doesn’t come from Mom and Dad but is something that has to be earned.
6. Increase Your Spending When You Get a Raise
Unless you absolutely must spend the extra money you’re getting from a bonus or promotion; it’s best to use that cash to reach your financial goals — whether it be increasing your 401(k) contributions or investing in stocks and bonds. Either way, you need to plan ahead of time to decide what you’re going to do with any cash windfall.
According to an article published by Bankrate, planning ahead helps remove the temptation to increase spending when extra cash comes in.
5. Spending Too Much on Housing
As a general rule of thumb, you shouldn’t spend more than 30 percent of your gross income on housing. Of course, that percentage may not work for everyone. That being the case, how much you spend on housing should be based on your personal financial situation.
-If you’re a young adult, choosing to live with your parents or a roommate can help you save money to help your finances in the long run when you finally decide to move out on your own.
-Never buy a house without looking at the full cost. By full cost, we mean all of the other costs associated with homeownership aside from mortgage payments. Those costs include things like utility bills, repairs, and ongoing maintenance.
4. Shopping When You’re Emotional
We don’t make the best decisions when we’re emotional. And, if you go shopping when you’re feeling down, you might end up spending way more money than you had planned on spending in an attempt to make yourself feel better. And, while this may be tough to do at times, it’s really best that you make shopping decisions based on your needs and your budget, not your emotions.
TIP: If you happen to be in a store and you’re feeling down, avoid pushy salespeople at all costs. They could end up “flattering” you into buying something you don’t need or worse — something that you can’t afford!
3. Living Above Your Means
If you want to build wealth, one of the best ways to do that is by living below your means. I mean, think about it: how else are you going to save and invest if you have little to nothing left over at the end of each pay period? No one’s saying you have to live like a pauper, but you don’t (and shouldn’t) have to overdo it.
TIP: Never co-sign a loan you can’t afford. “The fact is that you never know if the person will be able to pay every single payment, so it’s best to prepare yourself,” Michelle Schroeder-Gardner of personal finance blog Making Sense of Cents told GOBankingRates.
2. Buying With a Credit Card When You Can Pay With Cash
Credit cards should be used in emergencies only. Using a card when you have cash on hand can cause you to end up in debt.
That’s because “it’s so easy to tap a credit card and forget about it, while cash makes you watch the money leave,” money management guru Dave Ramsey said in a blog post.
If you already have credit card debt by chance, you will want to pay that off as soon as possible. You can do this by taking out a lower-interest personal loan to consolidate your debt and pay it off faster.
1. Paying off Your Biggest Debts First
It might make sense to take on your biggest debts first and deal with the smaller ones later. But, that actually is the worst way to approach the situation. Instead, pay off the loan with the lowest balance first, and make only the minimum payments on the loans with higher interest rates.
Getting the smaller one(s) out of the way first will give you a sense of victory (and relief) and motivate you to take on the bigger debts. And, before you know it, you’ll be debt-free!