Counseling people about personal finance puts me in a unique position; showing me exactly what not to do with money by learning from others mistakes. In reviewing hundreds of budgets and scenarios each year, I discovered six jumbo money mistakes that far too many people make, as well as how to teach others how to avoid making them altogether.
Budgeting for the Short-Term
I use a monthly budget, but I draft my monthly budget from an annual budget. When I start with larger numbers, it's easier (and less painless) to make cuts to my budget, while adding cushioning for unexpected expenses, and putting more money toward my savings and investments.
Overspending on Housing
When I bought my house seven years ago, I qualified for a $220,000 house. Instead, I bought a house for half that: $128,000. I did this so that I could pay off my mortgage faster and have a hefty down payment (after paying less interest) on my next, nicer home. Never max out your mortgage approval.
Not Investing In Yourself
For most of my career, professional development courses have been mandatory -- they are also tax deductible. However, too many people I have worked with become stagnant. By not investing in themselves and in their own continuing education, they had fewer opportunities and promotions than peers who did continue learning. Don't skimp on investing in yourself and staying ahead of your peers. It does pay off.
Overspending to Earn Rewards
I am the self-declared queen of earning cash back. However, I am also extremely frugal. Many of my clients fell into a spending mindset; thinking that they have to spend more to earn more. If you are earning 1 percent (1/10th) of every dollar, overspending to earn rewards isn't worth it. Spend what you need, but don't spend to earn cash back or airline miles.
In a world where price match guarantees are common, I don't understand why more of my clients weren't taking advantage of it. If you bring in an ad from a competitor, most big box stores will match the price, as well as offer an additional discount -- many times as much as 10 to 20 percent more than the lowest advertised price.
Relying Only on Your Job
I am the first to admit that the 9 to 5 gig is necessary, but only relying on your job isn't going to build wealth. Today, the average worker now holds 10 different jobs before the age of 36. Instead of relying on a paycheck alone, I tell my clients to do what I do: find additional sources of income using freelance work, teaching gigs at local community colleges or moneymaking blogs to create multiple streams of income. The answer is different for everyone, but thinking outside the box is essential to building wealth and improving your own financial situation.
The Bottom Line on Money Mistakes
We all make mistakes. However, I have found then when I am able to identify the money mistakes my clients make and point those out to them, the easier it is for all of us to stop making mistakes -- or avoid them altogether. Without making common money mistakes it's possible to save more, earn more and live better.
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More from this contributor:
- Banking & Budgeting