5 Money Mistakes and How to Avoid ThemSubmitted by Desmond Wealth Management, Inc. on February 24th, 2019
Have you ever heard someone say that experience is the best teacher? Here’s another one. There are no mistakes, just lessons.
Well, we would like to take a slightly different tack. Experience isn’t the best teacher - someone else’s experience is. Learn from other peoples’ mistakes and you can save yourself a lot of grief.
In that spirit, we’d like to review the biggest financial mistakes we’ve seen and offer you ways to avoid them.
1. Living paycheck to paycheck
Too many Americans don’t have enough money in savings. According to CareerBuilder, nearly 80% of Americans live paycheck to paycheck to make ends meet. Lest you think this applies only to those who are in low-wage positions, nearly one in ten workers who earn over $100,000 or more are in the same boat.
We're shining a bright spotlight on this predicament in the wake of the recent government shutdown. During the closure, we were treated to a healthy dose of stories from federal employees who were running out of money after missing one or two paychecks - and these folks were guaranteed back pay and were offered plenty of assistance from banks and credit unions!
We're not trying to minimize the frustration many of them experienced, but imagine what might happen during an extended period of unemployment.
Don’t wait to start socking money away. Pay yourself by stashing away funds after each pay period. We would recommend at least three to six months of emergency funds, and we’d lean towards six months. A financial house that is in disorder is among the leading causes of stress. Savings will mitigate the emotional and mental burden.
2. You can’t start too early saving for retirement
It's not too soon to broach the subject with your college-age son or daughter. They may seem less than enthusiastic; we get that. There are many other things they're focused on today. However, when they graduate, the seed will have been planted, and they’ll be mentally ready to sign up for their 401k.
There are those in their late 40s who can probably retire comfortably by 60. Yet, they regret waiting until 30 to begin putting money into a retirement account. What if they had started in their early 20s?
We all know the reason earlier is better – it’s the magic of compounding. Those deposits made in our 20s will have a lifetime to grow. Don’t waste the chance to increase your savings now. You’ll never get it back.
3. Do you know where your money goes?
Without a spending plan that tracks expenditures, you may wonder why there is a month at the end of your money, and not money at the end of your month.
Some people can tell you how much they spent on gasoline in March 2001. That may sound extreme, but there are various guidelines you can use when setting up a plan.
Focus on the essentials: rent, mortgage, utilities. Leave room for your financial goals: repaying debts, retirement, emergency funds. Also have some fun by budgeting for lifestyle choices: recreation, hobbies, vacation, and so forth.
If you are unsure how you might get started, our team can help you develop a spending plan that will help get your financial house in order.
4. Credit cards and personal debt
Credit cards are a fantastic convenience and most pay some type of reward, but don’t place yourself in bondage to monthly payments. Pay them off monthly or you will suffer from steep interest charges.
If you feel like you’re buried under a mountain of credit card debt, an auto payment, student loans, and/or personal debt, you’ll need a plan of attack. Let’s talk. It will be the best financial decision you ever made. Just knowing there’s a roadmap to debt-free living will be liberating.
5. Those luxury purchases
That new car sure is fast. The ride is exceedingly quiet and it has all the latest gadgets, but the new car smell will eventually wear off. The payments, however, won’t. When looking for a new vehicle, what you don’t know can hurt you. What is the gas mileage? Does it require an expensive grade of gasoline? What will it cost to insure? What will the annual license renewal run?
If you can answer these questions and the payments comfortably fit into your budget, you’ll sidestep any surprises that could crowd out your hobbies and financial goals.
Let us emphasize again that it is our job to assist you! If you have any questions or would like to discuss any matters, please feel free to give us a call.