There are plenty of financial mistakes that people are bound to make during their lifetime. And if you’re guilty of these same mistakes we’re about to cover in this post, you’re not alone. We were once actually guilty of them as well before we each started our debt free journeys. However, when you know better you do better <hopefully>. So not only are we going to discuss the financial mistakes, but we’re going to share ways to avoid them / overcome them as well. Let’s get started, shall we?
1. Not Doing A Budget
If you’re not doing a budget it’s probably because you feel like doing a budget will be restrictive. However, we’re here to tell you that doing a budget is far from being restrictive. It’s only restrictive in regards to the amount of money you have to spend, which isn’t a bad thing if you’re trying to avoid debt or get out of debt.
So… Budget. Budget! BUDGET! Not doing a budget means that your money isn’t going where you want it to go efficiently. Metaphorically speaking…
- It’s like putting water in a bucket that has some holes in it. You might keep some of the water, but you will spill some as well.
- It’s where the rubber meets the road.
- It’s each step in your marathon towards financial independence.
- It’s like the radar in a plane.
- Doing a budget is where you and your spouse can get intentional about what you want to accomplish.
- It’s where the talk ends and the action begins.
The budget is it. It’s the most important step that you can take towards gaining control of your finances, getting out of debt, and reaching many other goals. The budget is the limit!
2. Not Getting Out Of Debt
Carrying debt can be a burden within itself. It can be emotionally and mentally stressful. And of course, stress can affect your health. Thinking about your debt can take your mind away from the things in your life that are more important.
Also, your income is tied up in paying people back instead of going to paying yourself or other things that you want or even need to do. By using debt to pay for things, you’re helping other people become rich off of the interest you’re paying to them, instead of helping yourself become rich. Basically, the borrower is slave to the lender. There’s no other way to put it. So instead of continuously borrowing money, why not get out of debt and instead save for the things you want and need?
3. Still Using Credit Cards While Trying To Get Out Of Debt
Many people justify the use of credit cards because of the perks and points associated with them. However, only 1 in 10 people actually pay the full balance of their credit card off each month.
Is it possible to use a credit card responsibly? Yes. However, if the use of credit cards is what got you into debt trouble… Then why would you continue to use it? Doing the same thing over and over and expecting a different outcome is the definition of insanity. So while trying to get out of debt, don’t use your credit card which is only adding more debt to your current debt. It’s counter-productive.
side note: Since using credit cards while getting out of debt should be a no-go, then it should be the same for using debt in general. If you’re trying to get out of debt don’t take on more debt during your “get out of debt journey”. And while you’re at it, just stop using debt even once you’re out of debt. Why go back into debt when you worked so hard to get out?
4. Living Beyond Your Means
This is all related and goes hand in hand with each other. If you’re living beyond your means you’re probably doing so by racking up lots and lots of debt. To help you live below/within your means, doing a budget will help. A budget will be able to show you what you can and can’t afford if you’re being realistic and honest with yourself when doing your budget.
5. Not Having An Emergency Fund
We’ve all had it happen before where something comes up and we’re not prepared. You randomly get nails in 3 tires that can’t be patched. Or you have an ER visit for your kid and you’re waiting for the bills to start rolling in. Or your furnace goes out in the middle of winter. Stuff will happen whether you’re prepared for it or not. Having an emergency fund can help make a stressful situation less stressful.
If you’re getting out of debt then you need to have a mini emergency fund. We had $2000 when we were working on getting out of debt. You can have as little as $1000, but we were more comfortable with $2000. We liked the idea of $2000 so that if an emergency did occur, we didn’t necessarily have to stop our debt-free journey in order to build up our mini emergency fund to $1000 again.
Once you’re out of debt, then your emergency fund needs to increase to 3 to 6 months worth of expenses (even a year’s worth won’t hurt). The point of this is to keep you from using credit cards when you’re trying to get out of debt. And so that you won’t go back into debt if an emergency occurs once you’re out of debt.
6. Comparing Yourself To Others
It’s normal to compare yourself to others, but it can become an unhealthy habit. It can make you feel bad about yourself and what you’ve accomplished up until this point. We tend to not compare ourselves to someone who isn’t doing as well as us (in our mind). However, you don’t know the specifics of someone else’s situation and what he/she went through to get there – that can be the good or the bad. So while you can use that person as (possible) inspiration, run your own race and focus on your own journey.
7. Not Saving For Retirement
This is a big one that people often times think about too late (or when it’s too late). You go through life earning an income for the present day and trying to enjoy life knowing that one day you won’t want to work any longer (or be able to work any longer). However, you’re not putting anything away for that day. Or you feel like you can keep putting off on saving for retirement because, “That’s always something I can do later.”
Being unprepared for retirement can cause you to have to work for longer than you want to. Sometimes it can even put the burden on other family members to have to be able to help you financially once you do retire. So do yourself and your family a favor and save for retirement, even if you’re only in your 20’s or 30’s, and especially if you’re in your 40’s. There should be no excuses. Afterall, it is possible to enjoy life now without sacrificing your future.
read: Is Social Security Enough For Retirement?
Final Thoughts
While it may seem like it’s hard to stop making these financial mistakes or even unnecessary to stop making them, it is more than possible and it is important to do so.
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