Financial mistakes are all around us. The important thing is to learn from other people’s mistakes so that you don’t repeat the same mistakes. Think just far you would already be if you learned from other people’s mistakes and applied to your own life. Without going through the pain.
As a seasoned personal finance connoisseur, I consider myself great with money. However, being great is far from being perfect. By the age of 27 years old, I created a $420,000 nest egg. That’s no easy feat. That’s in the top 2% of my age group, at a minimum.
I’m on track to reach the millionaire status by age 28. However, even though I am on track to get there, that doesn’t mean I didn’t make any mistakes. Some of these mistakes were so substantial that it’s only right to kick myself. What’s important is that I learned from them.
My mistakes shouldn’t be your mistakes. I went through the painful process of making these mistakes so that you don’t have to. That’s what a good personal finance blogger does so that you can have a better financial life than me. There’s so many times I thought, “If I just hadn’t done that..”.
The mistakes are common too so if you had made them, you’re not alone. Many others have made the same mistakes and many others will make the same mistakes all over again. None of us are perfect at it so all we can do is do our best and forget the rest. Let’s keep forging ahead!
10 Common Financial Mistakes
One of the first financial mistakes you’ll make is not SMASHING that social share button and posting to your favorite social media! Your friends could use a valuable article like this and if anything, please consider doing it for me.
SO with that said, let’s go over the 10 common financial mistakes people still experience!
Financial Mistake #1: Small but Frequent Purchases
In my first job out of college, there was a vending machine in the company cafeteria. It was literally only one floor below me. So therefore, I would make my way down to the vending machine every day and purchase 2 – 5 delicious Vickie’s Jalapeno chips for me.
They were individual chip packages so you know I was overpaying for them already. However, I didn’t care. It was only a dollar! However, that’s a financial mistakes mindset that I had. Over a course of a year, that’s close to $800 that I spent on chips alone. When I could’ve just purchased a big bag from the grocery store.
The convenience couldn’t be beat. They knew they had me as a customer because, well, it was literally only one floor below me. I did that for 2 years. Imagine how much money that is. It’s enough to pay for two months rent at the time! Small but frequent purchases are what adds up to the biggest downfalls.
Financial Mistake #2: Using 100% of Approved Mortgage Debt
The banks are sneaky. From the financial crisis, they learned that they shouldn’t loan out money to people who doesn’t have a 9-5 income. However, that means they will lend out as much as they can do people with a 9-5. Who cares about affordability, they have a 9-5!
Some banks will lend you up to 5x your 9-5 income. Thinking that it’s a sound decision. You’re not supposed to use all of the mortgage for an astute personal finance junkie. You’re only supposed to use 60 – 80% of the approved loan. Otherwise, you will be set for financial ruin!
Avoid using 100% of the given debt. Otherwise, you will be in too much debt for you to handle and will be locked in to working in your 9-5 forever. You don’t want that. You want to reach financial freedom as soon as you can without anyone interfering with it.
Financial Mistake #3: Relying on Borrowed Money
Too many people finance their lifestyle and live on borrowed money. They don’t generate enough money on their own to finance their entire life. So they have to finance and bridge the gap with debt. That’s not the right way to go! It’s one of the biggest financial mistakes Americans make today.
If you can’t afford to buy it out right with your money, then it’s not a purchase you should take. I have $45,000 worth of debt. However, it’s not to buy more stuff that I can’t afford. If I wanted to, I can pay it off today and be completely debt free. However, it’s for liquidity purposes.
In case something does go sour in 2022 and I need to position and prepare myself for the worst. I finance my lifestyle with cash that I generate from the 9-5 and my investment income. There’s no need for the bank to lend me money so that I can finance my lifestyle. That’s not how I like to live.
Financial Mistake #4: Not Investing Early or at All
There are some adults who say, “my kids are my retirement plan”. And they say it with a straight face! Another thing people like to say to justify their spending is that, “I have time to invest”. Yes. You do have plenty of time to invest. However, that doesn’t mean that the first dollars aren’t the most impactful.
The first dollars you invest in are the most crucial in building wealth. They will make the greatest impact to your wealth than any subsequent dollars you put into it. What is that? Time. Time is what matters the most in investing, not the dollars invested.
One dollar invested for 5000 years will amount to enormous returns at a 8% rate. None of us are going to be living 5,000 years but you get the point. Financial mistakes doesn’t just include on what you spend on. It includes what you don’t do that could change the trajectory of your life forever.
Financial Mistake #5: Overspending on Groceries
If you’re throwing away food regularly, that’s bad. You didn’t just waste the food in spoilage and trash costs, you wasted money. That’s losing both ways. The environment and the money is wasted. Figure out what kinds of food you’re throwing away so often and stop overspending on them.
It’s one of the most common financial mistakes because everybody spends money on food. They have to go to the grocery store in order to procure the next steak they want to grill. You need food in order to live. Therefore, when you’re going to spend money on it anyway, it’s a good idea to minimize the costs.
I personally only buy things that won’t spoil such as bottled water, sparkling water, and the like. In terms of food, I visit the local Chipotle and/or Subway quite often. Therefore, there are no spoilage and/or food costs for me in the budget. It’s all taken care of and I love it.
Financial Mistake #6: Not Thinking About the Future
The future is going to come whether you’re prepared for it or not. Too many people have this “you only live once” mentality and leave everything up for later. It’s one of the biggest financial mistakes because people are fine going through life and hoping one big break helps them succeed.
No. You have to actively plan and take action towards it. The ones who became successful didn’t get there by waiting until others gave them things. They got there by putting in the work every day and taking intentional steps towards their goals.
Think about the future. Time is going to pass you by without you realizing it. Therefore, it’s best to prepare for it as much as you can. You don’t want to go through your life without having a plan in place. The future is going to hit you hard in ways you haven’t even seen coming.
Financial Mistake #7: Keeping Unused Subscription Services
It’s those $10 or $15 small monthly purchases that add up. If you have Netflix, then more power to you. However, if you have Netflix yet you don’t use it, then that is bad. It’s time to cancel those services and save your money. I personally have a Audible subscription service.
I happily dish out money for it because I use it every month. However, I don’t keep the subscription just to say that I have it. I actively make use of it on a monthly basis. Financial mistakes creep through you whenever you’re not looking or thinking about it.
It’s those things that happens when you’re taking inaction rather than taking action. Don’t give companies more money than you have to. You worked hard for your money. You should be the one to enjoy that money, not someone else. Cancel any unused subscription services today.
Financial Mistake #8: Not Getting a Second Quote
Very rarely will the first quote you get will be the best one. Always pit companies against each other to win your business. You don’t want to be an easy customer, you want to be a difficult customer. For example, I recently applied for an unsecured consumer loan.
They quoted me a 7.5% APY. Guess what happened after I just let the quote sit there for a month? Magically, the quote improved to 6.5% APY. I didn’t end up taking the deal. However, that’s what happens when you don’t take the first deal offered to you. It gets better all on its own.
Whatever you’re in the market for, there’s always a better price. It’s just a matter of are you willing to put in the additional cost in order to get the additional benefit. The simplest effort you can put in is to go on Google and type what you’re looking for and let the results speak for themselves.
It’s one of the avoidable financial mistakes.
Financial Mistake #9: Buying a New Car
When you buy a new car, you lose 10% of it to depreciation right then and there. 10% of your money, poof. Gone. Just like that without any benefit that’s given to you. Does that sound good to you? These days, the supply chain and semiconductor chip shortage is forcing consumers to buy new.
However, in a general rule, it’s not a good idea to buy a new car. My car is a used 2016 Nissan car that I bought for $10,500 cash, all-in. It works perfectly fine six years later and there’s no way I would trade it for anything else. Every year, I depreciate 10% of the cost and it makes a tiny minuscule part of my net worth now.
When you buy a new car, it will cost $20 – $30k. More likely even more expensive than that. Too many people buy a new car with the first job that they acquire. Thinking they “deserve” it. However, that’s a one of the common financial mistakes. Don’t follow the masses and carve your own path.
Financial Mistake #10: Not Checking Your Credit Report Every Year
You can get free credit reports from Annual Credit Reports. They give you the three reports from the 3 credit bureaus so that you can check for accuracy, dispute and charges, and the like. Check your credit report every year because you never know if someone stole your identity or are there disputes you missed.
You can see when you applied for each accounts, what accounts are delinquent, what accounts are current, and the like. Store the credit reports in a safe space. It’s one of the underrated financial mistakes because not everybody knows to check their reports every year.
They give it to you for free. It’s not a bad idea to check it. You want to make sure your credit score is up to snuff. People don’t understand just how important their creditworthiness and their credit score is until they have to go through the loan process.
Financial Mistakes Should be Avoided
Many make these financial mistakes and many will continue to make them. They should be avoided at all costs because I’m outlining the mistakes for you. I’ve made a lot of the mistakes. I’m highlighting them onto the article to help better your financial life and future.
You don’t have to be perfect along your journey. You can absolutely do it while making gigantic mistakes along the way. This is all about avoiding the avoidable mistakes so that it doesn’t happen to you or your family. The little $5 – $10 purchases don’t make a difference.. Until it does.
Some mistakes add up so that it’s actually worth your entire paycheck. Imagine that. Two weeks of your life just spend fixing the financial mistakes that you’re making. Two weeks is an absurd amount of time to be spent working in an office helping someone else get richer.
Don’t be like me who thought he had it all figured out by the time he graduated college. I thought I was never going to make mistakes and thought my entire life will be mapped out going forward. How wrong was I?! These are mistakes I didn’t even know that I thought I would make and I made them anyway.
Put your ego aside because pride is bad and start thinking about how to add to your bottom line. There are more creative ways than one to add to your bottom line and get to that millionaire status. It’s going to just feel so sweet when you get there. The feeling just can’t be beat.
Financial Mistakes to Avoid Shortlist:
- Small but frequent purchases
- Using 100% of approved mortgage debt
- Relying on borrowed money
- Not investing early or at all
- Overspending on groceries
- Not thinking about the future
- Keeping unused subscription services
- Not getting a second quote
- Buying a new car
- Not checking your credit report every year
