6 Money Mistakes That You Should Avoid at All Costs

Let’s face it, managing money is a complex task. Throughout our lives, almost all of us have made bad decisions regarding our money. In fact, most Americans have made a money mistake over the course of their life.

However, these seemingly small mistakes can end up being quite costly. Here are six common money mistakes that you should avoid to maintain your financial health.

1. Not Creating a Monthly Budget

Have you ever been pouring over receipts at the end of the month, thinking, “where did all the money go?” Well, don’t worry; you’re not alone. Most of us, at one point or another, have avoided creating a monthly budget, ultimately leading to losing control over our finances.

Creating a monthly budget allows you to plan out all your expenses and track the money you are spending on each category.

Allocating a fixed amount of money for each want or need allows you greater control over what you buy and forces you to make more money-conscious decisions. For example, if you have $100 allotted monthly to eat out, you’ll opt for less expensive options or smaller portions and think twice when you’re near your limit.

Budgeting is also a great way to hold yourself accountable. For example, when you’re tracking all your expenses and are constantly over budget, you can pinpoint exactly what you’re overspending on and how to make lifestyle changes, such as cutting subscriptions, in order to stay within budget.

2. Overusing Your Credit Card

It’s easy to think of your credit card as “free money” that you can use now and potentially pay back later. However, this often leads to the significant mistake of overusing your credit card.

Using your credit card for regular day-to-day expenses, such as groceries or gas, is becoming increasingly common. But high-interest rates on those charges mean you pay a much higher price for everyday things.

The convenience of opening a new credit card and the ease of spending money on it means it’s now easier than ever to accumulate credit card debt. 35% of Americans carry credit card debt from month to month, and high-interest rates make it harder to pay off the debt.

To avoid making this mistake, treat your credit card like it’s your debit card and avoid spending money that you don’t already have in your account. If you want to improve your credit score by buying items with your credit card, make sure that you have the money lined up and pay the credit as soon as you can.

3. Not Having an Emergency Fund

One of the most common mistakes people make is not having an emergency fund set up. Unexpected events and emergencies, such as medical emergencies or car repairs, mean huge bills, and people often find themselves unable to pay them.

Only 39% of Americans have enough money to cover a $1000 unexpected bill, and almost a quarter of Americans would be willing to take out a loan or use their credit card in case of emergencies. However, taking out high-interest loans for emergencies could be a surefire way of ending up in debt.

Create an emergency fund that can cover at least three months of basic needs in case of a job loss or other emergency. Setting aside money for a rainy day can mean you always have a financial cushion when things get rough.

4. Saving Everything Instead of Investing

Savings are essential to managing your finances and building up your wealth. However, a common mistake is keeping too much money in cash. Even if you amass a large cash amount, inflation will indeed reduce the worth of your savings.

Investing your extra money can be a great way to save and grow your money. Higher-risk investments such as stocks lead to greater returns but have the potential of losing your money.

If you’re interested in keeping your money safe in a low-risk investment, you can opt for a high-yield savings account or conservative index funds that allows you to grow your money slightly while saving while staying liquid.

5. Buying What You Can’t Afford

In a world of credit cards and installments, it’s increasingly easy to live beyond our means and buy things we can’t afford. This may mean purchasing the newest car model when it comes out or buying new technology even when we don’t have enough money in our bank account.

Being able to meet monthly payments for an item does not mean you can afford it, so even if you can pay off your brand-new car, it doesn’t mean you should. Remember, if you can’t buy it twice, you can’t afford it.

Reducing the amount of money you spend on unnecessary, expensive things will ultimately give you greater control over your finances.

6. Not Creating Financial Goals

Not having financial goals is a common money mistake most people tend to make. Creating a budget and saving are both critical, but they tend to be ineffective when you don’t have a concrete goal to work toward.

Knowing exactly how much money you need to save, such as $100,000 for a downpayment or tuition, means that you’ll be much more focused on saving that amount, whether it means creating a tighter budget or cutting back on wants.

Creating financial goals ultimately allows you to strive towards a specific monetary target by a particular date, pushing you to have greater control over each expense you make.

The Bottom Line

All of us tend to make mistakes when it comes to money. However, the sooner we realize our mistakes and avoid them, the sooner we can regain control over our finances. By avoiding these six mistakes, you can manage your money better and work towards a more secure financial future.