If you're reading this, I'm earning money. Thanks for helping to feed my family. Please see our disclosure for more information. Also, any advice provided is for informational purposes only. I'm not a CPA, lawyer, or doctor, although my parents wanted me to be all three. So, talk to a professional before acting on anything you read below.
Think about this:
Where would you be now financially if you never made a mistake with your money?
Would you be financially free?
Could you leave your job?
Would you have a better life without debt?
In today's contributed post, we're going to explore common money mistakes to avoid this year and beyond. Think about the impact avoiding money mistakes earlier in life can do for you in the long-term.
Then, we're going to show you a few ways you can prevent further money mistakes in the future.
If you're the type of person who likes to plan ahead, this post is for you.
Let's get to it.
If you're in your 20s, please don't neglect your financial future. I say this as a 30-something who left my 20s a few years ago.
You can really build a solid foundation for yourself in your 20s with careful planning. There are people who have started blogs and other businesses in their 20s who can now do whatever they want.
Don't be careless when it comes to your money. That's one of the most important money mistakes to avoid in whatever generation you're in.
However, I want to stress it here because you can magnify the effects of compounding interest by starting as early as possible. And, no matter what you do, you can never get time back.
This is an issue that is far too common.
I remember when I was college that credit card companies would come onto campus to sign us up for a card with our school's logo and mascot.
Who wouldn't to support their school and team, right?
You buy some drinks on the card. Maybe books for next semester. Go out to eat and few times.
Your parents get the bill and chew you out.
This "easy money" mindset is definitely one of the biggest money mistakes to avoid at all costs.
It’s way easier to pay off $2,000 at age 22 than have it balloon to $20,000 at age 32 and have to address it at that time. Get a second job, work over time, live at home, get a roommate — do what you need to do to knock out that few thousand dollars in credit card debt that is hanging around.
So, it's not just me. Trust me.
I've been in $30,000 of credit card debt. I know what is required to pay it off.
You don't want to do this to yourself and set yourself back financially at such a young age.
I don't care whether you hate your job or love it.
Everyone (and I do mean everyone) should have at least one additional stream of income that's helping to pay off debt, adding to savings or retirement, or funding things you normally would go into debt to pay for.
Deep Patel, VIP Contributor at Entrepreneur and author of A Paperboy's Fable: The 11 Principles of Success, explains why having a side business or side hustle is so important:
You’ll never have more time and energy then you do right now. This is a precious resource, so instead of binge watching your favorite shows, put your spare time to use earning extra money.
Here at Run The Money, we encourage people to use their talents and abilities to serve others. In my opinion, one of the best ways to do this is with a side business that you can make yours.
After all, as we continue to advance with technology and things get less and less personal, the ability to interact with people locally or through the technology itself is crucial.
Having that side business or side hustle allows you to get out of your comfort zone and increase your income.
Plus, having a side business also keeps your from being guilty of another one of the money mistakes to avoid!
Let's face it:
That got your attention, huh? Well, it's partially true.
Once you leave school, your real education begins. In my day job, I do things I never learned in school. With my side business, I do things I never learned in school.
Again, life and experience is the true educator. Not some professor who chose to teach about the profession instead of working in it (think about that).
I say all of this to make a point:
Don't pay more and more for an education, which the value of is decreasing like driving a car off the lot.
Sure, if you're a doctor or lawyer, you (hopefully) are making much more after your school when you're in the workforce for a few years.
But, what about the rest of you? Pay off the student loans as early as possible and don't look back.
That's what I did.
Instead of saving, I threw all my extra money at my student loans and paid them off in a few years after leaving school. Fortunately, it was only $20,000. But, I didn't want to end up paying 2x that after you factor in the interest.
This is another of the great money mistakes to avoid. Please do at all costs.
Another big money mistake to avoid:
Think about this:
74% of people will go into debt to pay for their wedding, according to a survey by Student Loan Hero of over 1,000 getting married in 2018.
That's right -- 74%!
It gets better:
The average cost of a wedding in 2017 was over $33,000, according to a survey by The Knot of almost 13,000 couples married in 2017.
OK, so sample sizes aside, 74% of people are willing to take on $33,000 for one day of wedded bliss. That's a down payment for a house or what some people owe on their student loans (or credit cards).
Are you kidding me? Do I really need to elaborate on this one?
Patel agrees with me (#19 on his list):
You’ve found your one and only, and now you want to tie the knot. Awesome! It’s your big day -- but remember it is just one day. Come up with a budget and look at your options carefully before saddling yourself with long-term debt.
If you're looking for more ways to pay off debt by making money this year, check out:
You'll learn things like:
Plus, you'll earn learn how to make money posting selfies like Kim Kardashian. I'm dead serious.
Check out the 2019 Guide To Making Money. You won't be disappointed.
Now that I'm in my 30s, I see how easily money issues can arise.
You start out with debt in your 20s and you let that interest compound instead of having cash in the bank or investments.
You've been in your career for a while and things didn't turn out exactly as expected.
You want to get away from your worries, so you overspend in your daily life and don't contribute enough to your retirement savings.
Hey, look, I get it. I've been in these situations myself.
However, that doesn't mean I don't want to help you avoid these money mistakes. Just because I made them or others made them, doesn't mean you have to as a rite of passage.
You may be asking yourself:
"What is lifestyle inflation?"
Well, let's see. Lifestyle inflation "refers to increasing one's spending as income goes up," according to Investopedia.
Honestly, it's one of the stupidest things we can do.
Just because you're earning more money in your 30s (hopefully) doesn't mean your expenses need to increase to same degree. That money should go to investments or savings (or at least a portion of it should).
Food for thought:
Your tendency to overspend and financially inflate your lifestyle is direct result of your pride and desire to "keep up with the Joneses."
This is definitely of the money mistakes to avoid completely. It's easy to want to have more things and even easier to use your credit card to get them.
But, from personal experience, it's also one of the hardest lessons to learn if you actually go through it.
Which leads me to another money mistake to avoid -- and yet another yours truly is guilty of.
Back in 2011, we bought way too much house.
Having two incomes at the time, we thought we were doing the right thing by buying as much house as we could afford at the encouragement of our families.
We were, as they say, house poor.
That's the thing about people telling you what to do with their money though.
It's not theirs. So, they don't care how you spend it.
While our families or friends might mean well, you and your spouse are the ones who will be shouldering the burden of the huge mortgage payment.
Plus, repairs, maintenance, water bills, electricity bills, homeowners' association (HOA) dues, trash, and the like.
Don't be like us and let yourself succumb to the pressure. And don't let yourself feel guilty about it.
Buy less house than you can afford in the best area with the lowest taxes. That's what you do.
Find a place that works for you and not everyone else.
Buying too much house is an incredibly hard pill to swallow and takes time (and lots of money) to rectify.
Don't make this stupid money mistake.
Does this sound like you?
"I'm comfortable where I am."
Now, we could be talking about where you live, where you're sitting out at a restaurant, or the fact that you're reclining in your favorite chair waiting for another Netflix show to start.
But, I'm talking about your job. How "comfortable" are you there?
Forbes contributor Andrew Josuweit explains that workers see a 60% increase in pay from their 20s to their 30s. However, from their 30s to 40s, "workers only see 20 percent growth in income — about two percent a year, just enough to match inflation."
So, how do you fix this?
There are few things you can. You can go back to school or even put your resume out there and apply for higher level positions.
However, I think a better way is to do what I recommended people in their 20s do as well:
Start a side business.
Use the skills, knowledge, and expertise you already have to bring in more money. Fill that 40% gap in your spare time.
Yes, it's hard with kids and family obligations. Of course, you're tired.
I know all the hesitations, protests, and excuses. I have them too from time to time as I pursue my dreams with my side hustle.
But, answer this one for me:
What choice to do you have?
Here's one thing I know people often forget to do:
Save for retirement.
We even did a whole Run The Money Guide To Retirement that shows you what you be saving by age. Check it out and see where you stack up.
If you're not saving for retirement, what's stopping you? Do you plan to work the rest of your life?
Sure, you have a lot of expenses in the short-term.
But, expenses don't go away in retirement. Your expense allocation just changes (i.e. increased health care costs).
Don't put it off until the kids go to college either.
Because the longer you wait to save for retirement, the less time you'll have to take advantage of the beauty of compound interest. Don't deny yourself this.
Patel says this in another article for Entrepreneur on money mistakes to avoid:
The earlier you start putting money away, the more time you will have to take advantage of the wonder of compounding: it’s the most powerful way to make your money work for you. Consider this: if you invest $1,000 a year between the ages of 25 and 35, at approximately 7 percent interest a year, this $10,000 investment will earn you nearly $113,000 by the time you are 65 years old.
Forbes contributor Andrew Josuweit on spending too much on kids:
Parents can quickly fall into the trap of feeling like they have to give their child every toy, lesson, or advantage — or else they are failing. This leads to overspending on new baby gear. Dropping $300 on new sports equipment every season. Contributing to college tuition instead of retirement savings.
It’s all too easy to put your child’s wants before other important needs. Whatever form it takes, spending on kids must be balanced with your own future financial security. Because the thing every child really needs is financially secure parents who can support them and show them how to set healthy money priorities.
I don't know what 40 is like. I have an idea, but I'm not there yet.
So, none of my suggestions will be based on personal experience. Rather, I'll focus on experiences of those I know and information I've gathered.
Either way, a lot of what I outlined for money mistakes to avoid in your 20s and 30s also applies to those of you in your 40s.
So, take this post not as more of a culmination of money mistakes to avoid rather than just issues that occur in each decade of life.
Theoretically, these money mistakes are problems we face multiple times throughout life. It's better to get a hold of them as early as possible.
With that said, here are a few key money mistakes to avoid in your 40s.
Fill in the blank:
The last time I worked out was ___________.
If it was more than a month or two, we have a problem.
At Run The Money, we cover health and fitness in addition to talking about money. So, I'm not letting any of you off easy.
Neglecting your health and fitness levels now will have a direct effect on your medical expenses later in life. It's best to face up to that fact now rather than when you're 50 or 60.
I have a friend who was overweight in his 40s. However, he decided to do something about it.
What did he do?
He starting running in his 40s. So, yes, it's possible.
He has run 5Ks, 10Ks, half marathons, and even ran the 2015 Philadelphia Marathon with me.
Don't make the money mistake of avoiding your health. You can do this. And you can even start with a walking plan.
Your health and wealth do go together after all!
Do you have an emergency fund?
If yes, you're amazing.
If not, what are you waiting for? Go set up an emergency fund right now!
The rest of this section is for those of you who have an emergency fund already in place.
Here's the thing:
Don't make the mistake that you can keep your emergency fund savings in your 40s at the same level it was in your 20s. Chances are you're spending more money today then you were 10 years ago.
Consider this advice from Get Rich Slowly's Suba Iyer:
With a bigger paycheck to replace, inflated expenses and more kids to support — and a hefty mortgage payment to boot — an emergency fund balance determined on income 10 years ago won't cover three months anymore. It might be the equivalent of just one to two months' pay or expenses today.
Don't get caught with your financial pants down. Nobody wants that!
Re-evaluate your current needs and emergency fund savings level. Get with your spouse and financial advisor. Then, make the correct plan to suit your family's financial needs.
This one drives me crazy.
Using your home or retirement nest egg as "easy money" is complete insanity. I say this even after considering doing it myself too.
It's just plain stupid.
Because you're borrowing against your future self. Then, you have to pay the bank and yourself back more money to get back to where you were in the first place.
One of the biggest areas I see people doing this (and again we've considered it) is with expensive home renovations and additions.
GRS' Iyer says this:
You might figure that, because you're earning more now than when you first bought the house and because remodeling is suppose to increase the house value, why not remodel?
Well, for one thing, most remodels don't move the value of the house up as much as you'd think. Secondly, most of us don't need a bigger house.
Consider finding other ways to pay for what you want to do to the house. At the very least, save up for it first and using income from a side business to provide the rest.
As you consider what the financial plan at each stage of your life should look like, think about what I said in this article for GOBankingRates on what running taught me about money:
What does your finish line look like? Is it 5, 10, 15 or more years down the road? What do you want your lifestyle to be? Will you live better or worse than you do now? These are all questions you need to know the answers to. Sure, the answers may not be perfect and you will have to adjust along the way, but, you need to know where your money is going and how much you need to live the life you want.
So, now you know what money mistakes to avoid.
But, you may be asking:
"Instead of know what money mistakes to avoid, how can I prevent money mistakes in the first place?"
Then again, maybe you have never really had a huge problem with your finances, but you do wish you were more organized when it comes to money.
After all, things can often slip through the cracks without you realizing. Plus, you want to switch your mindset in order to start making more money and saving more of your precious time.
First you need to address where your money situation often struggles, even if it is only a minor element of your financial life.
You will then be able to take action with some of the following methods, to get your cash stash back into a reasonable and manageable state.
When you get paid for a job, especially when you work for yourself or carry out freelance work, it can be hard to keep track of every bit of money which lands in your account. You are consistently sending out invoices and receiving payments for things, but you don’t know how much profit you are actually making.
Check out this Free paycheck stub maker and you won’t have to worry about keeping track of your income and taxes ever again. Their smart tool does all of the hard work for you. Using a method like this will mean fewer money mistakes in the long run.
If you start to fall into any type of debt it is always handy to have some savings to fall back on. Try and save a small amount of money each month just in case you need it one day.
Open up a savings account which has a excellent interest rates and you will soon be making that little bit extra than you used to.
Keep a keen eye on your bank account activity, especially when you have large sums of money sitting in there. Fraudulent activity and hacking can often go unnoticed if you are disorganized with your personal and business accounts.
It is recommended that you use a banking app so that you can easily check your funds and activity once or twice each day.
Watch what you spend if you have a tendency to have money troubles. You might find yourself in hot water if you splash out on a lavish item that you don’t really need.
When you are shopping for personal or business products make sure you evaluate how useful it is going to be for you in the long run and whether you can justify spending a lot of money on just that one thing.
Use a budgeting diary so that you can start saving up for important purchases; planning ahead is the best way to stay on top of your financial situation.
By watching what you spend, checking your account regularly and monitoring your invoices you will soon have a much better grasp of your finances than ever before.
Many people don’t realize that they are losing out in terms of cash because they don’t keep a proper record of their income and expenses.
Overall you need to start being more smart with your money so that the little things don’t get in your way.
Before you go:
Now that we've done a deep dive into the money mistakes to avoid in your 20s, 30s, and 40s along with some tips for preventing future money problems, I want know what your worst money mistakes are.
Are you guilty of the money mistakes we discussed? Or are there other money problems you have going on?
I'd like to know.
First, so I can help in any way.
Two, so that you can help others avoid that same money issue.
Comment below or email me.
I want thank you for reading this spending mistakes article.
To your money!
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