Schools don’t do a very good job when it comes to teaching basic money management skills.
If we want to learn how to handle money we pretty much have to rely on the example set by our parents, as well as our own experiences of trial and error.
If we’re lucky we figure things out early and get a head start on the path to financial freedom. But all too often we fall into the same money traps that keep so many other people from achieving their dreams.
If you want to take control of your finances and start building wealth you need to avoid these common money mistakes…
Being Penny Wise and Pound Foolish
I’m sure you’ve heard this sage old saying before but do you know what it means?
To be penny wise and pound foolish means that you spend an inordinate amount of time trying to save a few pennies while costing yourself larger amounts of money in the long run.
An example would be parking your car and running into a store without feeding a quarter into the meter only to find a parking ticket on your windshield when you return. You effort to save 25 cents ended up costing you much more.
You Have No Idea Where Your Money Is Going
I’m not good at budgeting.
I just find it far too tedious and boring to do month after month, so I don’t really do it. But I can tell you how much I have in each of my ING Direct accounts, how much debt I have, and roughly how much we spend each month.
It’s not a perfect system but I prefer to keep a bird’s eye view on our finances rather than drilling down to the penny.
However, if you find yourself in the situation where you have no money left at the end of the month and you can’t figure out why, you need to start tracking your spending for a few months. You’ll be surprised to discover where you have been wasting money and not even realizing it.
You Don’t Have an Emergency Fund
Unexpected expenses have a way of popping up when you least expect them.
Your car needs new brakes. Your washing machine dies. A pipe in the basement bursts. Your employer lays you off.
If you don’t have money set aside for these types of unexpected expenses how are you going to pay for them…credit cards. And then you’ll be paying finance charges for the next 30 years.
Trust me when I tell you I speak from experience. Unexpected expenses can ruin the best laid plans, and it’s a big relief knowing that you have an emergency fund to fall back on.
You Have No Goals or Plan
When I think of the times where we had the most success saving money away it always involved a specific goal.
We had to put money away to pay our wedding expenses. We had to save like crazy to put a down payment on our first home. We’re currently socking money in a separate account to take the kids to Disney World next year…shhhh…don’t tell them!
Those are all very focused short term goals which made it easy to make them a priority.
Long term goals like retirement can be a little trickier to save for.
Of course we all want to retire in style, but when exactly? And how much do you need to save?
The vagueness makes it hard to maintain focus. One way to combat that is to make more specific goals. Instead of saying, “I want to retire to a shore house someday” say to yourself, “I want to quit my job by the time I am 55 and buy a small shore house in a specific town. To do that I’ll need X amount of money, so I need to save Y amount each month.”
The more specific you make your goals the easier time you’ll have focusing on them.
You’ve Fallen into the Debt Trap
According to Federal Reserve reports, the average credit card debt per household is nearly $16,000.
If your interest rate is 14.99% and you only make only the minimum payments it will take you 37 years to pay off your balance, and you’ll pay $25,534 in interest charges.
There’s just no way you can build wealth for yourself when you’re paying that kind of money to credit card companies.
I’ll make this short and sweet…if you’re not in debt right now, keep it that way! If you’ve already fallen into the debt trap, you need to bust your butt and pay down your debt as quickly as possible if you ever want to achieve true financial freedom.
You Pay No Attention to Your Credit Score
Whether you like it or not your credit score has a huge impact on your life.
A bad score can increase the amount you pay for loans and insurance, prevent you from renting an apartment or even keep you from landing a job. Just a few late or missed payments can send your credit score reeling, and will take time to build your score back up again.
If you don’t know your score, you can order it for about $15 from one of the three credit-reporting agencies: Equifax, Experian, or Trans Union. Or you can create a free account at Credit Sesame and get your Experian National Equivalency Score. While not exactly the same as your credit score, it is based on the same information and can give you a good idea of how you’re doing.
You Won’t Ask for Help
Admitting you need help can be difficult for many people.
But trying to do everything on your own can lead to disaster. There’s no shame in asking others for advice.
If someone is more experienced or knowledgeable on a subject than you are, ask them questions and try to learn something from them instead of putting on a show and pretending you’re on the same level.
For example, let’s say you’ve always wanted to open a restaurant and one of your college buddies just happens to run the most successful diner in town. You may be too proud to ask his advice and want to prove you can do it all on your own. But if you’re smart you’ll try to tap into his experience and knowledge before taking the leap yourself. Odds are he can steer you in the right direction and help you avoid making the same mistakes he did.
There are a lot of smart people in this world who will gladly help you out if you just have the courage to ask them. When you find someone like that don’t worry about impressing them, just be a sponge and try to soak up as much knowledge from them as possible.
Mike Collins is obsessed with building new streams of income and achieving financial freedom so he can live life to the fullest with his wife and 3 amazing children. Read more about his adventures at WealthyTurtle.com