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Before I started Financialdemics, I was helping friends and family with their finances and I realized there were some common mistakes that everyone, even me, would encounter when it came to managing their money. A lot of the issues people encounter were due to improper planning which ends up affecting their goals.
Not saving for unexpected expenses. Everyone has unexpected expenses, Beyoncé, Oprah, Michelle Obama, Rihana, everyone. If you think they don’t, you are living in the clouds and not reality. The difference is they have the money to absorb the unexpected expense, but guess what? You can too, you just have to plan for it. We know that something always comes up, just think about the natural disasters that have occurred this year in the United States, floods, hurricanes, and fires. Many people had to evacuate their homes quickly and unexpectedly. But there's also a positive standpoint, planning for the unexpected gives you opportunities and freedom. Whether it’s stepping out on your own to start a business, get an advanced degree, travel or retire early.
Waiting to start saving for retirement. When you wait to start saving for retirement you are missing out on compound interest. Here's an example, I pulled from 360 Financial Literacy. If a 20-year-old starts saving $200 a month and earns an 8% annual return on her savings she would have $1,054,908 saved at age 65. If she would have waited to start saving at 30 years old and earned the same 8% annual return she would have only saved $458,776 at 65. That’s the power of compound interest.
So once you start earning income, you should start saving for retirement. Even if your job does not offer a retirement plan you can save by contributing to a Traditional or Roth IRA.
Not purchasing life insurance. I know you have either seen or contributed to the GoFundMe campaigns going around on Facebook after someone passes away and their family is trying to pay for their funeral. It always breaks my heart because the family is now under stress trying to pay for the funeral while grieving. Life insurance helps cover the cost of burial expenses but it also helps replace your income so your family can still continue to have the same quality of life. For those of you who, don’t have any kids, at least get a small term policy while you are healthy and young (it’s cheaper) to at least pay for your funeral.
Having too much credit card debt. First off, I’m not anti-credit card, but if you are carrying a high balance on your credit card you’re putting yourself at a disadvantage, believe me, I’m telling you from experience. Think about the amount you pay toward your debt each month and what you could be doing with that money each month. That payment becomes burdensome after a while, especially if your money is tight. The payment that you’re paying can also keep you from doing the things you really want to do like travel, start your own business, or even purchasing a home. It's better to save for the items you want to purchase instead of putting them on credit, it becomes one less bill you have to pay each month and that’s the goal. You’re not here on this earth just to work and pay bills.
Spending too much on housing. So the rule is to spend no more than 28% on your rent/mortgage but that is the high end and you still have to pay utilities (electric, water, gas, etc.), renters/home insurance, cable (there are alternatives) and the other obligations you have. You don’t want to be in a place where your whole check is going to bills. You can still live in a nice, reasonably priced home and still have the freedom to live the life you want to live.
Bonus: Having only one stream of income. Look, things have changed, jobs are NOT “secure” anymore. Corporations have been consistently laying people off. Their largest expense is their employees. Listen! You need more than one stream of income. It doesn’t have to be another job where you are trading time for dollars. It can be something you are already good at, like baking or making body scrubs. Just find additional streams of income. A few side hustles you can do in your free time are:
Surveys: There are a lot of survey companies that will actually pay you for your opinion. One company pays me $3.00 just to get my Amazon order history.
Swagbucks: Earn gift cards and cash for the online activities you already do daily.
Check out the side hustle interview I had with a Postmates Driver here.
Paparazzi: My friend LaShaun over at Divas R Frugal is making an extra $300 a month selling Paparazzi jewelry. If you’re interested, let her know I sent you.
Mystery Shop: Mystery shopping is one of the ways I made extra money when I was paying off debt. Read my post here on whether mystery shopping is legit.
Have you made any of the 6 Mistakes listed above? I have. You can always reset and change your story by taking my email course The 7-Day Financial Reset.
