Last updated on November 14th, 2019
Schools don’t do a very good job when it comes to teaching even the most basic money management skills. Without that foundation of knowledge, it’s no wonder so many people make money mistakes that cripple their ability to reach their goals.
We rely on our parents and family to set an example of how money should be handled, as well as our own experiences of trail and error.
Those of us whose parents aren’t financially savvy or make money mistakes of their own are likely to copy those bad habits and end up with similar results.
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 become stuck in the same money traps that keep so many other people from achieving their dreams.
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 have any idea 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.
Your effort to save a measly 25 cents ended up costing you much more.
Other examples of being penny wise and pound foolish include:
- Opening a store credit card to save 5 percent on purchases, but then carrying a balance at 29 percent interest
- Buying the least expensive clothes and shoes you can find, but having to replace them frequently because they don’t last
- Buying perishable items in bulk at Costco to save money, and then tossing them because they went bad before you could use them
You Have No Idea Where Your Money Is Going
Despite the name of this site, I hate budgeting.
I just find it far too tedious and boring to do month after month, so I don’t really do it consistently.
But I can tell you how much I have in each of my savings accounts, how much debt I have, and roughly how much we spend each month.
It may not be a perfect system but I prefer to keep a bird’s eye view on our finances rather than drilling down to the very last 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 at least a few months.
You’ll be surprised to discover where you have been wasting money and not even realizing it.
From there you can create your first budget to get your finances back on track.
You Don’t Have an Emergency Fund
Unexpected expenses have a way of popping up when you are least prepared for 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?
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 even 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 very 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 away 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 household with credit card debt owes nearly $17,000.
If you only make the minimum payment on those balances, it will take decades to pay them off and you’ll pay many thousands of dollars in interest.
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 into a downward spiral.
You can get a free copy of your credit report once a year from AnnualCreditReport.com, but that doesn’t include your actual credit score. To get that you’ll need to pay a fee.
Or you can create a free account at Credit Sesame and they will monitor your credit for you and share your VantageScore credit score for free.
It’s not exactly the same as your FICO score but it’s pretty close. Plus, I’m a huge fan of Credit Sesame because they helped boost my score by 100 points.
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.
When 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 has been working in the financial industry since 2002 and is a self-proclaimed money nerd. He’s written for numerous personal finance websites and been featured on sites such as MarketWatch, Fortune, and Business Insider. Mike created Wealthy Turtle to give readers the tools and knowledge to manage their money like a rock star.