3 min read
Seventy-six percent of Americans have made an average of five financial decisions they regret in the past five years. Listen, I want you to have zero financial regrets. I want you to take advantage of this time to set yourself and your future family up for success. That starts with avoiding things that keep you from advancing financially. Today we're talking about the 10 common money mistakes to avoid. Ready? Let’s get started!
1. Avoid getting into debt
Piling up a lot of debt is one of the worst money mistakes you can make. Why? Because contrary to what society says, debt robs from your future. It is not surprising to find people in their 20s who are buried in debt—student loans, car payments and credit card debt—and feel like they can’t move forward.
If you already have debt, don’t wait to pay it off. You lose track of what you owe if you ignore your debts, especially those credit card debts. So, I want you to list what you owe and to whom. Then, I want you to go hard on paying them off. Trust me, you don’t want those debts following you into your future.
Y’all, debt steals from your future. It may give you instant gratification, but it slows you down financially. Fifty-five percent of millennials and Generation Z believe homeownership is "financially out of reach" due to prior debt, especially from student loans. Don’t let that be you. Instead, use these tips to get out of debt.
How to get out of debt
- Get on a budget.
Examine your bank statements and old receipts to determine how much money you spent and made in the last three months. Then, divide it into "Monthly Income" and "Monthly Spending" and see if you spend more than you earn or vice versa.
- Cut your expenses to what you need and put the rest towards paying off your debt.
It is advisable to only spend on essential items and expenses such as rent, utilities, food, clothing, etc. It will help you to set aside money to reduce your debts.
- Get a second job.
Getting another job helps you have another money source to repay your debts. Find something you can do on the side and throw all that extra money at the debt.
2. Not having a fully funded emergency fund
One of the common money mistakes you can make is not having a fully funded emergency fund to help you in emergencies. Listen, one major emergency can send people right back into debt. Having an emergency fund will come in clutch and help you to avoid expensive debt, like credit card debt or high-interest personal loans.
Keep three to six months of expenses in a separate account, and only use it for emergencies. Setting aside three to six months’ worth of expenses in case of emergency is vital. But it’s important that you ONLY use it for emergencies. It might be tempting for some of you to spend that money, but don’t. And if you’re serious about your wealth-building journey, you won’t.
3. Not optimizing your taxes
Taxes take a large proportion of your income, but making the most of your tax deductions can keep more cash in your pockets, not the IRS'. A CPA can help you get the most out of the tax code.
If you don’t have one, I want you to hire a CPA to file your taxes. Hiring a good CPA is worthwhile if your taxes are complicated, you lack the patience and skill to do your taxes, or you are unsure how some tax laws and changes apply to you. Use these tips to find a good tax pro.
Tips for finding a tax pro:
Hire a licensed CPA, not just anyone. Choosing the most qualified tax professional can help you uncover tax savings that even the best tax software might miss. CPAs are trained to know the tax code so you can take full advantage of the tax code for your situation.
Hire a CPA who specializes in your situation: small businesses, freelance, real estate, bankruptcy, etc. Other accounting specializations for CPAs include business, government, forensic accounting, and tax preparation.
Work with someone knowledgeable about tax code. The good thing about CPAs is that they have had to prove their knowledge in tax preparation and will have a wealth of experience.
Ask around for referrals. Asking for recommendations for the best tax experts from people in a similar financial position as you can save you lots of time and connect you with a great tax pro.
4.Wasting your free time
The only resource you can't make more of is time. So use it wisely by using any free time you have to make more money and improve your life.
- Create time to follow your dreams or goals every day. For example, if you wish to set up a successful business, find time to learn several things about what it takes to run a successful one.
- Limit social media or TV, and do things that’ll make you a better person. There’s nothing wrong with watching a little social media or TV once in a while, but if you’re spending hours and hours on your phone or watching TV and you’re not progressing toward your goals, then it’s time to turn the TV off and pursue your dreams.
- Read books and listen to podcasts. Listening to podcasts and reading books about proper financial management, how to make more money, etc., is a much better way of spending your time.
- Take a class. Classes in financial literacy, effective money management, or skills that you can use to make more money will equip you with fantastic skills to help you put your finances in order.
- Join a networking meetup group. I’m a huge proponent of having a strong network of mentors, friends and mentees. This is crucial for you too. Be intentional about your friends and who you’re spending time with.
5.Not having a financial plan
If you aim at nothing, you'll hit it every time. The same is true about how your handle your money. Having a financial plan will keep you on track to hit your financial goals. Here are some things to plan for:
- Retirement. Your financial plan should include details about how much you want to contribute monthly to your retirement based on how much you think you’ll need to retire. Also, look into retirement plans that your employer may offer, such as a 401k, and factor that into your plan.
- Homeownership. Decide the amount you wish to contribute toward homeownership and stick to this as outlined in your financial plan.
- Parenthood. Having kids is expensive. School fees, clothes, extracurricular activities, travel sports, etc. are all expensive. (And that’s just for one kid.) Be sure to include them in your financial plan, too.
Write down your financial plan, and revisit it regularly. It will help you to know if you are on the right track regarding your spending, saving, investments, etc., and allows you to adjust.
6. Thinking you can afford it all
Never fall victim to impulse buying! It is one of the fastest routes to amassing huge debts and getting a negative net worth. Before you go shopping, you should already know if you can afford something or not.
Jay-Z said, "If you can't buy it twice, you can't afford it." This doesn't mean you need to have $20,000 in the bank if you're buying a $10,000 car, but if you buy a car at that price, you should still have about $5,000 left in your account. Even if you want to spoil yourself and buy and own an expensive car, it’s smart to make sure you still have money left in your account for other needs.
7. Not diversifying your investments
Diversification protects you from financial loss because you don't have all your eggs in one basket. It also gives you more opportunities to create wealth. Here are some potential investments:
- Savings: A savings account will be handy for days when you have a financial hardship and will allow you to make future investments.
- Retirement account: It will help you save money to help you when you can no longer work due to old age to cover future expenses and investments.
- Mutual funds: Investing in mutual funds can be a quick way to begin or diversify your investment portfolio. I highly recommend investing in mutual funds for your retirement account.
- Real estate: Real estate is an ever-expanding industry and will often give you amazing profits on your investment if you do it right.
- Starting a business: Starting a business will help you have another source of income, and thus, you have better chances of growing your wealth.
8. Not spending time searching for better deals
Look at your current expenses and see if you can save money somewhere.
The secret to saving more is cutting costs on your expenses. Find a better deal if a particular expense takes too much of your money.
Some areas you might be able to save are:
- Phone plans. Choose a plan that fits your usage patterns. Otherwise, you're probably paying for unnecessary minutes, text messages, or data plans.
- Insurance. Compare insurance discounts. Don't take the first offer you encounter; you may be able to get a much better deal from another company.
- Housing. Most home listings begin with a high price tag, but with a little research and comparison, you can find a great deal.
9. Not watching your credit report
You don't need a credit score, but you must watch for fraud. When reviewing your credit reports, keep an eye out for changes to your account information, inquiries, and public record information. If something appears suspicious and isn't your fault, dispute the error.
I use Aura for my identity theft protection. Aura is a firm that assists people in monitoring their personal information to protect it from hackers, data breaches, malware, phishing attacks, and other threats to their digital security.
Aura sells all-in-one, proactive digital security to keep you and your family safe from identity theft, financial fraud, and online threats. It safeguards up to 10 people against identity theft, fraud, and online threats, providing secure online accounts, enabling private web browsing, and preventing unwanted emails.
Aura is easy to use and has 24/7 customer support by email and phone. All subscription plans are backed with $1,000,000 in identity theft insurance for your peace of mind. Every adult member on your plan is covered by a $1,000,000 insurance policy that covers eligible losses and fees caused by identity theft and fraud.
10. Not having the proper insurance in place
Insurance protects you financially from things you can't afford, even with your emergency fund. Insurance ensures if something unexpected occurs, that it’s covered by your policy. With the right insurance in place, you will not have to pay the full cost of a loss. Thus, not having it is one of the worst money mistakes you can make.
Insurance you need:
- Term life insurance: A term life insurance policy requires you to pay a premium for a period, typically between 10 and 30 years. If you die within this time, your beneficiary receives a cash benefit, which will ensure your family’s financial future.
- Car insurance: Car insurance is mandatory if you’re going to drive a car, but you want to make sure you have the right amount of insurance in place. Talk to your insurance provider about your options.
- Renter’s insurance: Renter's insurance protects your property when living in a rented apartment, condo, or home from unforeseeable events such as theft, fire, or sewer backup damage—and will reimburse you for lost or damaged
- Health insurance: Health insurance is a form of insurance that covers the medical expenses incurred due to an illness. These costs could be related to medication, hospitalization, or doctor consultation.
Bad financial decisions can set you back in your wealth-building journey. Crippling debt, not having enough savings, not planning for our future and not having the right insurance in place can set you back. But now that you know what to look out for, you can avoid these. Use this advice to avoid these common money mistakes and achieve financial freedom. I know you can do it!