It is very common for young adults and young professionals to make money mistakes early in our financial lives. I definitely made some money mistakes when I was younger which included using my credit cards unwisely, making only the required minimum payments on my credit cards as well as not saving enough of my monthly income. However I lived to learn from my money mistakes, and now I am definitely more financially responsible.
US News published an article titled 12 Money Mistakes Almost Everyone Makes. They list the top 12 little mistakes that can have a big impact on our personal finances both in the short term as well as the long term.
Do you make common financial mistakes?
Budgeting for the Short Term. Most of us may have a biweekly or monthly budget, but US News suggests that we make an annual budget. I believe that an annual budget can be broken down into a monthly budget, and short term goals are easier to manage. Budgeting only for the short term is a bad idea because we may lose focus on our long term goals.
Overspending on Housing. I couldn’t agree more with this point. If we decide that homeownership is the right financial move for us, we should buy a house that we love. Buying a house is a financial decision, and we should buy a property at a good value in hopes of selling it later to make a profit.
Skimping on Career Investments. An investment in our career is an investment in our self. Hiring a professional career coach and having a resume professionally prepared is a very smart investment.
Falling victim to Spending Traps. Financial Institutions and Credit Card companies often try to lure clients in with short term incentives. These short term gimmicks can end up costing us more over the long term in monthly fees and interest rates. There is no need to change financial institutions to get a free toaster.
Failing to Negotiate Prices. Everything in life is negotiable from our monthly bank fees to our first car purchase. We can never get a good deal if we don’t ask.
Earning Income From Only One Source. Earning income from more than one source is a good idea because it acts as a backup source in case we lose our primary source of income. Having two incomes is always a good idea because we can never have enough money.
Taking on Too Much or Too Little Debt. Too much debt can become unmanageable and hurt our credit score if we are unable to make our payments on time. However, having too little debt can also hurt us. Having a credit card is not enough, we have to continuously use it and pay it on time every month to establish a good credit history.
Trying to Time the Market. As a financial planner I cannot stress this point enough. Investing is for the long term. We should not buy and sell our investments based on short term fluctuations.
Paying Too Much Attention to the Dow. Knowing what is happening in the economy and the market is always helpful for our financial decisions. However, watching the market can become an obsession and could influence our investment decisions in the short term.
Counting on Social Security. It is a smart financial move to have personal retirement savings. Social Security may be here today, but it may not be there tomorrow when we are ready to retire. Saving privately in a 401k, an employer pension plan, or other personal retirement savings plans is a good idea to guarantee a financially comfortable retirement.
Overspending on Gifts. Many people now focus on spending the holidays with good food and family. Material gifts may become a thing of the past. I think it’s nice to receive gifts, but without the added financial stress of having to buy more gifts than we can afford. My family has a $50 limit per gift per family member, so the maximum I can spend on gifts at Christmas is $250.
Underestimating Tax Bills. Taxes are certain and if we don’t prepare throughout the year we could be stuck with a big tax bill that we can’t afford.
Have you made any of these common money mistakes?
I have made 2 of these common money mistakes in the past, and I am currently making 2 of these common money mistakes. I will let you guess which mistakes I have made in the past, and which 2 I am currently making.