8 money mistakes everyone should stop making

By Justice Kofi Bimpeh
money_mistakes

Living within one's financial means is one of the difficult things to do in the 21st century leading to some money mistakes we make.

These mistakes make life uneasy and unplanned for us especially in retirement or after a job loss. The influence of peers, society and social media has made most people leave lives that have no plan for the future and even the present.

Below are some money mistakes we make us people.

1. Money Mistakes- No Financial Plan

If you don’t have a plan, then it is difficult to know what to do with your money. This money mistake will make you flounder when it comes to saving, buying a house and getting out of debt. It is important to have clear goals so that you can reach them. It takes work and planning to be successful financially. If you find yourself running out of money each month, you will also need a budget.

Fix: Set up an effective financial plan that includes both short and long-term goals. You can plan for things like purchasing a house, finding your dream job and your retirement.

The more detailed your plan, the better. If it feels like too much pressure, remember that you can change things if you need to or if your goals change.

Working on one plan will help you even if you change to a different plan. Once you have your plan, you can use it to create a solid budget that will help you reach your goals.

2. Money mistakes-Not saving towards retirement

You are most likely get a job when you are young that offers a retirement account and employer match. Do your best to contribute! An employer match means they’ll match your contributions, up to a certain percent (that’s usually 3-6% for most companies).

A good rule of thumb to determine how much you should contribute is 7%-15% of your income. But, any bit helps at this age! You have time on your side and compounding interest will work wonders. (This is interest earned on interest … which basically means your money starts making more money as the balance grows.)

If you don’t work for an employer that offers retirement account options, you can still save for retirement by opening up an IRA (Individual Retirement Account). You’ll most likely have the option to choose a Traditional IRA or a Roth IRA. The main difference between the two is that in a Roth IRA the money you contribute is taxed first, not upon withdrawal in retirement. With a Traditional IRA, you get taxed in retirement on the withdrawals you take.

Roth can be a good option if you think you’ll be moving to a higher tax bracket in retirement. Either way, starting to save for retirement now is important.

3. Not spending with your wallet

Money is just about checks and balances, right? Wrong. Our relationship with money is incredibly complicated and multi-dimensional. We oftentimes spend with our hearts, not with our wallets.

Because of this, it’s incredibly important to understand your unique approach and relationship to money.Are you a spender or a saver? Does stress trigger spending? If you got $1000 right now, what would you do with it? How do you feel about your finances? All of these types of questions can help you understand what motivates your behavior around money.

4. Not Saving for unforeseen circumstances

When I first graduated from college I was overwhelmed by all the financial priorities I faced: paying off debt, contributing to a retirement fund, saving for my own place, buying a car … I had no idea what to focus on first. Then I started working at a financial company and I learned that the number one thing to start with is an emergency fund of at least $1,000.

Focusing all my effort on getting to that $1,000 paid off, and continues to pay off whenever I have a car repair, unexpected medical bill or higher-than-average utility bill. Building an emergency fund is incredibly important to keep you out of debt. And there will be emergencies. It’s not a matter of ‘if,’ but a matter of ‘when’ and an emergency fund can keep your head up during those times.

5. Ignoring Debt

From student loans to credit cards, debt can add up. The biggest mistake is to ignore it. Debt won’t magically disappear, and owning the same debt for too long can have a negative impact on your FICO® Score and credit options.

Start paying off your debt as soon as possible and try to pay more than your minimum payment. This should help reduce the length of your loan and the amount of interest you’ll pay. To help ensure you pay your debt on time, you should include your debt payments into your monthly budget. And this leads us to the next common 20-something mistake…

6. Rushing to buy a home

The allure of home ownership is powerful. After all, it’s the American Dream. And that dream is ingrained in our collective conscious. Whether we think we desire homeownership or not, culture keeps whispering that haven’t “made it” until we own a home.

Try to resist until you’re really ready.

I know people who bought condos and homes as soon as they graduated from college and I know people who, after 30, are renting and have no interest in giving it up (and not just in New York).

Although the results of the early-home buyers were mixed, the apartment-dwellers are generally happier. They have less stress, more free time and money, and more freedom.

Owning a home is rewarding, but it requires time, money, and a serious commitment.

7. Borrowing money for a wedding

Emotion and money don’t mix. And few events in life evoke more emotions than your wedding day.

With the average cost of American weddings surpassing $28,000, tying the knot could be one of the biggest single expenses in life after buying a home and sending a kid to college. But it doesn’t have to be.

Traditionally, lavish weddings have been family celebrations paid for the bride’s and/or groom’s parents. Being older, parents are usually wealthier than their betrothed adult kids, in which case the wedding tab, while still large, makes less of a splash.

What’s happening is more people are deciding to pay for the wedding with their own meager bank accounts, but they are expecting parties on par with family-funded extravaganzas they’ve seen on Bravo reality shows. And they bridge the gap by borrowing heavily.

Now I never judge people for spending money they have on things that are important to them – even if it looks unnecessary or wasteful to most people. And I wholeheartedly understand the desire to create the party (and memory) or a lifetime. I just think here’s one way you don’t want to be reminded of your big day – with even bigger bills. Being newlyweds is difficult enough; don’t compound that stress with unnecessary debts!

On a positive note, many of my friends have opted for simple wedding ceremonies at home or City Hall followed by a casual party. The events are no less fun or meaningful because they cost a truckload less. Sure, a smaller wedding may disappoint some relatives, but if they’re not footing the bill, can they really complain?

8. Thinking Credit Cards Can Support Your Lifestyle

It’s easy for credit card debt to rack up fast when you’re young and your income isn’t quite up to the lifestyles of the rich and famous. I recommend sticking to a debit card or using the envelope system when you’re relatively new to managing finances. Credit cards are fine if you know that you can pay the balance off each month, but until you get a grasp of your spending trends, it’s best to stick with the cash you already have.

Not sure what type of lifestyle you can afford? Use a budget. Try keeping track of every purchase for at least a month. Use apps like mint.com or this budget spreadsheet to make the process easier. Then, make sure you’re spending less than you’re making. If not, brainstorm ways to increase your income, or find areas to cut back on spending. Just remember, using a credit card is not a way to round out your income.

If you do have credit card debt, don’t panic. You’re not a bad person and it’s not the end of the world. But you do need a strategy to pay off that debt. Try using the Snowball Method, which provides you with the motivation to keep paying off your debt.