It can be hard to admit you’ve made some financial mistakes, especially when those mistakes had embarrassing and expensive consequences. Using myself as an example:
Exhibit A: When I was 21, I financed a $25,000 Mitsubishi Galant with no money down. Even worse, I only made around $8 an hour at the time.
Exhibit B: Long before getting serious about money, I bought a $1,300 vacuum from a door-to-door salesman.
I did pay off that car eventually, but the $500 monthly payment was painful. Lesson learned. And the $1,300 vacuum? It does a great job, but I’m not sure how I could ever justify that purchase. Now my only plan is to keep it until the end of time.
The point is, I learned from all my money mistakes, and now use my negative experiences as fuel to do better.
You Don’t Have to Be Young to Screw Up
It’s far too easy to make money mistakes when you’re young and haven’t figured it all out yet. But even once you get older, it’s easy to continue making decisions that are detrimental to your finances if you don’t know better. Here are some examples of money mistakes we’ve all made:
1. Buying Things We Can’t Afford
It’s almost an American pastime, though the reasons vary from person to person. For example, you might buy things you can’t afford to “keep up with the Joneses” or project an image of success or wealth. Others buy things they can’t afford perhaps because they truly don’t know what they can afford, or they simply want what they want – no matter the cost. It’s likely that all of us have bought at least one thing we couldn’t afford whether we want to admit it or not.
2. Voluntarily Taking on Consumer Debt
Do you know what is worse than buying things you can’t afford? You guessed it — using credit to finance those purchases. I learned that lesson the hard way more than once, but it did eventually stick.
Debt is a curse, paying off debt is a huge burden, and planning your life around it just plain stinks. A debt-free lifestyle may be difficult to achieve, but it’s not impossible, and it’s totally worth it.
3. Not Saving Enough for Retirement
When you get your first job in your 20s, it’s easy to see retirement as some far-off goal that you’ll have plenty of time to plan for. But retirement doesn’t take place at some fixed date and time in the future; retirement can happen as soon as we are ready for it. And the sooner we start saving, the better.
If you’re employed by someone else and receive a company match on your 401(k), you’ll be even better off if you start saving early. After all, your company match is essentially free money that will grow alongside your contributions until the time is right.
4. Not Saving for Emergencies or a Rainy Day
Your car breaks down, your furnace dies, or your dog needs emergency surgery. These are all emergencies that can and will happen. Unfortunately, these are the exact type of situations that land people in debt or force them to borrow money from a long-term savings account.
Most experts recommend that you have three to six months of expenses saved in an emergency or rainy day fund. If you don’t have that much set aside, start saving until you do.
5. Succumbing to Lifestyle Inflation
It’s called lifestyle creep for a reason. As you earn more money, your spending creeps up right along with your paycheck.
So, what’s the problem? While lifestyle inflation may not be a problem in itself, it can lead to the other four money mistakes listed above. Simply put, if you spend as much as you earn, you may not have enough left for other important expenses and goals like emergencies or retirement. Living below your means, not at or beyond your means, should be the goal.
Some may call them money mistakes, but I call them learning opportunities. Most people learn more from experiencing hardships firsthand. None of us is perfect, but each decision we make is an opportunity to create a better future for ourselves and our families.