Woulda, coulda, shoulda.
We all have regrets in life, but none sting quite as much as financial mistakes.
I had a friend once tell me:
“Financial regrets are like that ex your friends and family warned you about, but you didn’t see it. Ten years later, you look back and wonder WTF you were thinking.”
Been there, done that?
Some money mistakes – like paying a bill late or missing a payment – can be swept under the rug. Others will haunt you.
So let’s dive a little deeper. Here are 13 money mistakes to avoid:
1. Treating Your Retirement Like a Distant Cousin
I don’t know about you.
But I don’t want to have to work in my 70s because I didn’t save for retirement.
And more importantly?
There is no pension for our generation. You must save for your own retirement. If you don’t, you’re screwed.
Here’s the deal:
When you reach the point of retirement, either you’ll have enough money saved to live comfortably or you won’t – and you’ll wish you had.
In a recent survey, older people were asked to share one piece of advice with young people.
Can you guess what they said?
The overwhelming majority said, “Save for the future!” And actually, that answer triumphed over everything else.
Experience has taught these people a hard lesson.
When you wait, not only do you feel more pressure, but you’re missing out on the power of compound interest.
Let me give you this example:
Vanessa and Ashley are both 25.
Vanessa decides to invest $202 per month into retirement until she turns 65.
Ashley decides to wait until she’s 35 to start. She says she wants to wait until she earns more money.
Here’s what that looks like:
Vanessa started 10 years earlier, with half the amount of monthly contributions, and came out ahead. Ashley’s financial mistake cost her $585,900.
Do you need help getting started? I recommend reading this. It’s a game changer.
2. Paying the Minimum on all your Credit Cards
Have you ever realized that most of your payment goes to interest instead of principal?
This is part of the reason debt takes years and years to pay off.
So what should you do?
First, stop adding more debt. Step away from the credit cards.
Secondly, transfer the balance to a lower-rate card or use a company like SoFi to lower your interest rate for you.
SoFi offers two main services:
1. Student Loan Refinancing
2. Personal Loans
Both services are free.
What is student loan refinancing?
When they refinance your loans, they pay off your existing loans and give you a new loan with a better rate.
If you have multiple loans, this means they’ll combine everything into a new, single loan. This makes keeping track of your bills simple.
(You can also refinance if you have just one loan)
What are personal loans?
Personal loans are ideal for credit cards and other types of debt. If you carry a high-interest rate on your credit cards, for example, then you can move that balance over to a personal loan.
Know your options. Don’t feel stuck in the high-interest trap. Do what you can to lower it.
Note: If you need more info on SoFi, check out our SoFi Review
3. Buying More House Than You Can Afford
When it comes to buying a home, what the bank says you can afford may not actually be what you can afford.
Wait, they don’t really do that, do they?
Yep, and it was a reason behind the 2008 housing crash.
Here’s the deal:
In 1960, the average house size was 1,289 square feet. Families were also larger back then (baby boomer generation)
Today, the average house size is 2,641 square feet. Families are smaller.
We all want more and more, until “more” becomes something we can’t afford. It leads us down a road of financial mistakes.
So what’s the point?
Your house payment should be no more than 30% of your income. That includes property taxes and insurance.
So when you’re determining how much house you can afford, make sure to include other important expenses besides bills.
(Think: retirement, emergency fund, and savings)
Give your budget room to grow.
Do you want to go back to school?
Will you change careers?
Do you want to save money for your kid’s college?
4. Taking On Too Much Financial Aid
The average college student graduates with $29,800 in student loan debt.
- 44% of graduates wish they’d saved more
- 34% wish they’d worked more to pay for college
- 22% wish they’d chosen a more affordable school
The worst part about it?
So many of us are willfully ignorant about the amount we borrowed. I mean – it’s all going to be paid off by future us, right?
Here’s what you should do:
Keep your budget in mind – the same way you would if you were shopping for a house. Also, understand your financial aid package.
Know the difference between scholarships and grants (you DON’T have to pay these back) and loans (you HAVE to pay these back)
Don’t get sucked into the spending mistake of thinking it’s all “free money.”
But what do you do when you already have student loan debt?
If that’s you, try starting with these:
You’ll be glad you did.
5. Not Tracking Your Everyday Purchases
Word to the wise:
Small things add up to big financial mistakes.
If you’re spending $10 a day on anything – your favorite coffee or lunch – those small purchases cost you $300 per month.
Talk about death by a thousand financial cuts.
This is where the power of a good budget comes in. A budget not only keeps you on track with your financial goals, but it gives you permission to spend.
Have you ever thought to yourself:
You know what, I’m not sure if I should buy this?
When you have a budget, you can spend guilt-free.
Think about all the money you’ll save, the financial goals you’ll reach, and the peace of mind you’ll finally get.
Are you ready?
6. Giving Into Lifestyle Inflation
I’ve come a long way. I earn good money, I work hard, so I deserve it.
Or at least, that’s what we tell ourselves.
It’s that “I deserve it” or “I can make the monthly payments” mindset that leads us to lifestyle creep.
Lifestyle creep is when your income goes up and your expenses rise to match it.
It’s like putting your financial goals on a treadmill – where you’ll never get any closer to reaching them.
You work hard and you should enjoy yourself. But don’t rob your future self by falling into the lifestyle inflation trap.
7. Borrowing From Your 401(k)
When the money is tight, that 401(k) is so tempting. After all, it’s your money – so why can’t you use it the way you want?
It’s one of the biggest financial mistakes you can make.
Here’s the thing:
If you withdraw money from your 401(k) before you’re 59.5, you’ll have to pay an early withdrawal penalty. On top of that, you’ll also pay income tax.
Studies show that half of the people who borrow from their 401(k) end up reducing how much they contribute monthly while repaying the loan.
One-third end up stopping contributions completely during the time they’re paying back the loan.
Just don’t do it.
8. “Investing” in a New Car
The average American spends $26,000 on a car.
With a 60 month loan and an average interest rate of 4% – that’s a $479 monthly payment.
But guess what?
The car dealer won’t tell you that your awesome new car will lose 11% of its value as soon as you drive it off the lot.
Maybe they accidentally left that part out.
After 4 years, that car has lost about 40% of its value.
They left that out too.
After 6 years, you’ve paid about $29,000 for a $26,000 car – which is now worth less than $12,000.
Sorry, let me rephrase.
Vehicles are important, but they can quickly turn into a discretionary purchase.
Once you tack on the bells and whistles (leather seats, sunroofs, park assist) it can really add up to something you can’t afford.
Spending a ton of money on something that loses 11% of its value instantly, and that sits idle 90% of the time, isn’t the best move.
The realization for many is that cars are one of our most underutilized– but yet most expensive – assets we have.
9. Avoiding Important Money Conversations With Your Partner
The best way to crash and burn financially is to take on all the financial goals yourself.
We’ve all heard the scary statistic that financial issues are a leading cause of divorce.
Think about it:
Financial mistakes can ruin relationships. It’s not just about money.
Talking about money is serious but it doesn’t have to be hard. It’s not about the dollars and cents – it’s about your lifestyles and goals.
Try to get on the same page about how money should be used, how important it is, and what it represents.
10. Spending Instead of Building an Emergency Fund
Have you ever had an unexpected expense pop up?
Life happens. Did you have the money to cover it?
Think about it:
Your emergency fund will help protect you from the inevitable.
People lose their jobs.
Medical expenses happen.
You don’t want a single disaster to send you into debt that you have to carry around for months or years. So start by saving $1,000 for your emergency fund. After that, you can focus on tackling your debt.
11. Racking Up Consumer Debt
1 in 7 people said their biggest financial regret was going into debt for “unnecessary purchases.”
And you know what?
It happens to the best of us.But there is a difference between good debt and bad debt.
Borrowing to buy a home can pay off in the long run, but borrowing to buy Christmas presents, vacations, or the new iPhone – NEVER will.
Debt is easy to get into but hard to get out of.
So before you buy, ask yourself:
Do I need this?
Do I want to store it?
Do I want to clean/maintain it?
And implement the 48-hour rule before making major purchases.
12. Bankrolling Your Family/Friends
Have you ever been asked for money?
Sure, you want your kids, family members, and friends to succeed.
But bankrolling your friends and family is one of the biggest financial mistakes you can make. And if you’re already struggling, this makes it even worse.
With that said, sometimes it’s hard to say no.
Your best bet is to just consider it a one-time gift and make that clear to the person involved.
Dave Ramsey recently talked about this with someone whose sister kept asking her for money. The woman was in a hard position because:
A) She had debt she was trying to pay off
B) Her sister would guilt trip her
C) And she actually made LESS money than her sister did.
Dave Ramsey’s advice was spot on:
13. Buying a Timeshare
Timeshares are easy traps to fall into.
I love a good vacation, so I completely understand. Happy vacationers enjoy the thought of seeing their favorite spot each year.
Just swap slots for another destination within the timeshare network.
Great deal! Right?
Besides paying thousands upfront – the maintenance fees are expensive. The average maintenance fee is $600 each year.
Plus, good luck if you develop buyer’s remorse.
The real estate market is full of used timeshares. This means you probably won’t get the price you want for yours.
So if you love a certain location, just go visit every year instead. Don’t commit yourself to a timeshare.
We all make financial mistakes.
We get into debt. Fail to save money. Don’t think about retirement. But that was your old way of life. Your new way of life is about progress.
One step at a time. Little by little. You can do this.
But you have to take the first step, here, now today.
What are you waiting for?
Thanks for reading.