Five Dangerous Money Mistakes

five dangerous money mistakes

You probably think you're on top of your finances because you manage to -- well, barely -- keep yourself out of debt. While you might be living from paycheck to paycheck, you're still able to keep your head above water. Does that mean everything's fine where your finances are concerned?

Disturbing findings from the 2012 Consumer Financial Literacy Survey claim otherwise. Only 59% of adults have money in their savings account and 25% say they are spending more now than they did in 2011. Simply put, people aren't saving enough money, yet they still continue to spend more. Are you one of those people?

Is it time to review your financial habits?

The things you consider perfectly normal might actually be harming you and your bank account -- not to mention your future. Here are five dangerous money mistakes you ought to avoid at all costs:

Buying A Home Because It's "Expected Of You"

Most people set goals based on what society expects of them. You're expected to graduate from college, find a good job, get a car, get married, and buy a home -- among other things. Milestones and goals are great.

However, if you buy a house just because it's "expected of you", then you're setting yourself up for trouble. A home is a serious and burdensome investment. You don't just pay for the house itself. You'll have to pay your taxes, fees, insurance, and on-going maintenance.

It's not that you should never buy a home; it's that you should buy a home only when you're sure it is the right time for you and you're ready. Don't go into something just because society expects it of you.

Paying Only The Minimum Of Your Credit Card Debt

All credit card companies inform you of the minimum amount due on your account and you are expected to pay at least that amount each month. Although this is allowed, the truth is that if you stick to paying only the minimum, you'll end up not paying off your debt ever.

Take note of the interest rate. The remaining amount you don't pay off each month will be subject to the interest rate. Eventually, your debt -- and the interest -- will keep accumulating until you're buried in credit card debt.

This means you'll never be able to get rid of your credit card debt. It's a burden you'll have on your back for a long time, and can damage your credit score.

Not Paying Yourself First

What does it mean to pay yourself first? It simply means that before spending on anything else, you should put aside a portion of your earnings into your personal savings. As mentioned earlier, a significant portion of society does not prioritize saving money for a rainy day.

Usually, people argue that they barely have enough to make ends meet, so it's impossible to save. In truth, saving even just a small amount each month is enough. With the power of compound interest, your savings will be quite substantial over time.

Start by creating a budget. List down all your bills and the payments you definitely have to make each month. From the leftover amount, decide how much you can save. This is the amount you have to move to your savings account each time you get your paycheck -- before you spend on anything else. In fact, it would help if you set up an automatic transfer each month to make it quick and pain free.

Spending Beyond Your Means

One common money trap is the belief that you have to keep upgrading your lifestyle. You might think that getting a promotion means you have to start living a "certain" way.

Unfortunately, just because you're a vice president now doesn't mean you have to flaunt your wealth or wear certain brands in order to be taken seriously.

A financial boost should mean more savings, not more expenses.

Always make sure that you're not spending beyond your means. If you're spending within your means but you're not saving enough, that still isn't a balanced financial lifestyle.

Pay off all your bills, save money, and only then will you be able to identify how much you have available for extra expenses. It may seem like a sacrifice, but it's better to tighten your belt now than suffer the consequences later.

No Money Stashed Away for a Rainy Day

"Hope for the best, but prepare for the worst."

Apart from your savings, it's a good idea to have a safety net. The worst things happen when we least expect it. You can't always prevent them, but you can be prepared. It's therefore necessary to have some money stashed away that will keep you afloat should something unexpected happen.

 


Comments

    • DC @ Young Adult Money

      DC @ Young Adult Money 08/12/2013 7:05 a.m. #

      A rainy day fund is something that I'm really trying to build up. It's pretty much guaranteed that you will have some sort of rainy day at some point in your life. That's one reason I love the HSA account because you can build up your medical funds and rest well knowing that you have that money there if an emergency comes up.

      • Sicorra

        Sicorra 08/12/2013 5:28 p.m. #

        Yes, for health issues it is important to have that account or medical insurance that you can rely on. And good for you guys for working on your rainy day fund. It is something we are doing as well.

    • Joe Saul-Sehy

      Joe Saul-Sehy 08/12/2013 8:54 a.m. #

      The house thing makes me laugh. The mortgage industry came up with a great tag line when they realized they could convince people that renting = throwing money away. It's only when you do that math that you realize just how many people are actually better off renting.

      • Sicorra

        Sicorra 08/12/2013 5:32 p.m. #

        My parents agree that renting equals throwing away money. I find that we save a lot of money each year by renting though, esp when the landlord pays for major repairs instead of us.

    • Corina Ramos

      Corina Ramos 08/12/2013 11:15 a.m. #

      These are great tips Sicorra. The important one is the rainy day fund. I used to think it was the same thing as our savings but it's not. :)

      It's taken us years to get over our financial mistakes. Had I followed this advice years ago, I'd be better off today. Still, this whole experience taught me how to handle my money better.

      Happy Monday girlfriend! Let's catch up soon :)

      • Sicorra

        Sicorra 08/12/2013 5:34 p.m. #

        Hey Corina, I honestly believe that some of us go through cycles in our lives where we have times that we are completely on top of our finances and then times when it is messed up. Similar to you, we've had our rough times, and similar to you, we are making changes too.

    • Thomas | Your Daily Finance

      Thomas | Your Daily Finance 08/12/2013 11:40 a.m. #

      I have seen so many people buying homes and spending money on big wedding just because its what is expected. What a waste of money if you ask me. Make sure you are doing what works for you and your family if you have one. Rainy day funds or at least some cash on hand is always needed. How much is up to you though.

      • Sicorra

        Sicorra 08/12/2013 5:35 p.m. #

        It is expected of people and in certain cultures the expectations around how much a person spends is quite high, whether they can afford it or not.

    • Shannon @ The Heavy Purse

      Shannon @ The Heavy Purse 08/12/2013 12:01 p.m. #

      Great tips, Sicorra. "Expected of You" happens so often. Sometimes we have a real herd mentality and simply do things because it's expected of us, rather than because we want to. It gets a lot of people into trouble. I always get nervous when people say they don't have a rainy day. There are few guarantees in life and stuff happens is one of them! My emergency fund has saved me countless time and it wasn't even for medical emergencies, but simple things like a lost retainer, etc.

      • Sicorra

        Sicorra 08/12/2013 5:40 p.m. #

        Thanks Shannon! When you think about it it is funny how many decisions many of us make in life because they are expected of us. Even outside of our finances. Our family or our peers have a very heavy influence on us.

    • debtfreeoneday

      debtfreeoneday 08/12/2013 3:46 p.m. #

      Only paying off the minimum payments on credit cards has been a huge mistake that I've made over and over again. It's so easy to just plod along and forget just how much debt you're in when only paying off the minimum payment.

      • Sicorra

        Sicorra 08/12/2013 5:41 p.m. #

        I know, it is easy to just pay the minimum. But then one day the minimum is so high, that you just can't do it anymore.

    • krantcents

      krantcents 08/12/2013 5:42 p.m. #

      "paying yourself first" has been my priority for most of my life. I always saved for the future and it has paid off handsomely. It helped me buy my first home, financial independence and a very nice retirement in the future.

      • Sicorra

        Sicorra 08/13/2013 4:34 p.m. #

        You manage your finances very well. It is clear based on how well you did with your rental properties and such.

    • Christy Garrett @ Uplifting Famiilies

      Christy Garrett @ Uplifting Famiilies 08/12/2013 9:33 p.m. #

      This is a great list. I also am a firm believer in over extending your credit obligations is a no no as well.

      With rising medical costs, it is best to always have a stash of emergency money. Even with insurance, some families could easily be wiped out financially from medical bills alone. Save for a rainy day.

      • Sicorra

        Sicorra 08/13/2013 4:36 p.m. #

        It is unfortunate, but the in States it is even more important to have money set aside for medical costs, as you clearly point out. It must be devastating to some families that need medical attention but can't truly afford the costs.

    • Anthony @ Thrifty Dad

      Anthony @ Thrifty Dad 08/13/2013 9:47 a.m. #

      Great tips Sicorra! Doing what's expected of you is a big one. I know we've been guilty of it, with our big Italian wedding. Luckily we managed to budget and work things out. But it could have easily set us back! Having a rainy day fund is really important. Luckily we haven't had to pull from our emergency yet, but we have a nice little reserve in case something goes awry.

      • Sicorra

        Sicorra 08/13/2013 4:47 p.m. #

        Good for you guys for being able to budget well for your wedding. Stuff adds up so quickly.

        I've been to a few Italian weddings so I know what you are talking about. They can be quite extravagant, and you are right, family typically expects that is what will happen.

    • Daisy @ Add Vodka

      Daisy @ Add Vodka 08/14/2013 7:20 p.m. #

      Hmm. I've never heard of buying a home because it's expected. I have heard of doing it because you want to prove something, though. We bought ours because we liked it and hate renting :)

      • Sicorra

        Sicorra 08/16/2013 5:37 p.m. #

        I think it comes from the old myth of grow up, get married, buy a house with a white picket fence, have 2.5 kids and so on. Old traditions.

    • Arelis Cintron

      Arelis Cintron 08/16/2013 12:50 p.m. #

      I am still working on paying down debt but I think the one thing that has saved me from getting in WAY over my head is the fact that I learned to pay myself first. Every month, like the rest of my bills, I put my into my emergency fund. Best practice I've ever started!

      • Sicorra

        Sicorra 08/16/2013 5:38 p.m. #

        That is so excellent Arelis! Having a nice emergency fund will give you that extra sense of security when it comes to your finances.

    • CarolB

      CarolB 08/16/2013 2:55 p.m. #

      Great tips Sicorra. I just wish more people would follow them. Sadly I've seen family members not, much to their detriment. I guess I learned it from my mom, who grew up in North Dakota in a farming family of 12 kids. I remember her saving all her change to pay for something extra. Never even had a credit card!

      • Sicorra

        Sicorra 08/16/2013 5:40 p.m. #

        Your mom sounds similar to may parents. They too never had a credit card, well at least not when I was young. And even when they did they just used it to pay for big ticket items and then paid it off at the bank a few days later.

    • Corinne

      Corinne 08/16/2013 8 p.m. #

      great post Sicorra! I think you totally got it right when it comes to the biggest mistakes. I personally know how hard it is to save and put aside money when you living on a cramped budget already, but it is so important.

      Have a great weekend!

      • Sicorra

        Sicorra 08/18/2013 6:25 p.m. #

        Thanks Corinne! Saving isn't always easy, but it is important for sure.

    • Nicole

      Nicole 08/17/2013 7:57 a.m. #

      Sicorra,

      These tips are paramount! I am a strong believer in living on 65-75 percent of your income. It takes a lot of dedication and will power, of course. And, in these economic times, it may also seem unrealistic. The key is to not spend EVERYTHING you earn. Contributing to your "rainy day fund" has to be a must and not a maybe. I started thinking about it as "paying myself" and that helps with forking over money that may seem enticing to spend especially during special occasions: Christmas, birthdays, vacations, anniversaries, etc.

      Thanks for sharing,

      -Nicole

      • Sicorra

        Sicorra 08/18/2013 6:27 p.m. #

        Nicole, Having your finances organized so that you are able to live off of 65 to 75% of your income is very important. Good for you for managing your finances that way and for not over spending, especially during the holidays.

    • Mayura

      Mayura 08/25/2013 2:45 a.m. #

      Hi Sicorra,

      Finally, I did it! ;) I wanted to stop by here and probably you knew that too. But it took a while :D

      Excellent post with tips that makes sense! :) I always loved that quote ~ Plan for the worst, hope for the best.

      Well, I'm living with my parents and here in my country, children do until they get married. I'm expecting to build my own house (becomes a home with loved ones) in future and not because others want me to do for sure.

      I can recall the days after I graduated, as others wanted me to have a job more than I needed. It was really annoying but that's how most people think - Studies, Job and Marriage. Well, what society expects. Even they expect marriage to be a grand party ever in someone's life even they can't afford to. Hence people take bank loans and suffer after pleasing everyone.

      I've got a credit card, but personally I don't like reminding myself that I have debts to deal with Sicorra ;) Never went off the limit and spent what I deposit. That's it. No debts, No headaches. Plus, make use of credit card too. Personally, I hate taking loans too.

      However my father used to pay his bills to minimum, even he could pay the full amount. Lately I could contribute myself and get himself to pay whole amount. It was such a relief for me, but I doubt if he did though. Different people have different views, eh?

      Ha ha... Spending beyond your means. I see that very often dear :) A friend of mine got promoted few months back, and he devoted 2 years of money to buy a brand new car. Took a loan in that scenario. But now, his company hit a lawsuit and his job at a stake. He should have listen to his parents or friends, when he make that decision.

      I need to take these tips into attention again, eventhough I seem to follow some of 'em Sicorra :) Unless we prepared, I know worst is waiting for all of us.

      You have a lovely weekend dear :)

      Cheers...

      • Sicorra

        Sicorra 08/26/2013 11:24 a.m. #

        Thank you so much for your comment Mayura!

        You sound like a man that has his financial priorities straight. Not liking debt is very important. It allows you to do other things with your life and not worry about whether or not you have enough money.

        Sorry to hear that your friend may soon be in a sticky situation if things do not work out at his job and he now has that car loan.

        Many of us spend our money thinking that we will always have plenty of money. I have had those times in my life too. And when the money suddenly stops, you can quickly find yourself in trouble.

        Keep doing what you are doing and I'm sure your finances will remain good.

        Have a great week my friend :-)

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