No matter what age you are — young or old — there are some crucial money mistakes you must avoid to stay afloat financially.
Unfortunately, it’s easy to fall into these pitfalls, particularly if you are unaware of them. Make these mistakes, and you might end up spending a long period digging yourself out of debt.
The more you know about these errors, the better the odds that you will steer clear of them. Following are 10 of the most common money mistakes people should avoid no matter their age.
Spending more than you earn
It’s all too easy to spend more than you earn. Perhaps you just can’t stop going to a restaurant for dinner or lunch. Or maybe you succumb all too often to the temptation of “retail therapy.”
But spending more than you earn depletes your finances, rendering you unable to save money and possibly putting you deeply into debt. To counter this habit, set up a budget and find a way to stick to it.
Running up credit card debt
Millions of Americans are up to their eyeballs in credit card debt. Try to avoid joining them.
Credit card debt usually comes with high interest rates. It is tough to tread water financially — never mind swimming ahead — when you are drowning in credit card bills.
So, only use a credit card when you are committed to paying off the bill in full every month. That way, you can build your credit profile and take advantage of rewards your card may offer without digging yourself into a hole.
Not having an emergency fund
We get it: Building up savings you can tap during an emergency is not easy, especially when everything seems so expensive.
However, you never know when you will need cash fast. Building an emergency fund can eliminate a lot of financial stress from your life.
To that end, do your best to save enough to cover three to six months of expenses. That way, you have a buffer that will allow you to get back on your feet should bad times arrive unexpectedly.
Skipping insurance, or buying too little of it
If you’re young and healthy, you may feel like health insurance is a waste of money. Or, perhaps you drive an older vehicle and don’t think you need much auto insurance to protect it.
However, skipping or skimping on insurance is never a good idea. You need an insurance policy with solid coverage just in case something happens.
Without health insurance, a surprise diagnosis could leave you on the hook for thousands of dollars in medical bills. Or, if you are responsible for badly injuring someone in a car accident, you could be sued for many thousands of dollars.
Without good auto insurance, you will be on the hook for those costs. So, maintain solid insurance. Hope for the best, but plan for the worst.
Falling victim to lifestyle creep
As you move through your career and make more money, you might turn around and spend more. This is known as “lifestyle creep.”
Perhaps you switch from generic products to their brand-name counterparts. Or, maybe you find yourself frequently splurging on things because you feel you “deserve it.”
Lifestyle creep can quietly destroy your ability to reach financial goals. It is much better to stick to a budget and invest your extra savings instead of wasting the money. Avoiding lifestyle creep can pay huge dividends down the road.
Buying brand-new cars
Who isn’t tempted to buy a brand-new car, with its fresh-off-the-line scent, shiny exterior, and cutting-edge technology? Sadly, though, new cars depreciate steeply the second you drive them off the dealer lot.
Instead, consider purchasing a certified, pre-owned vehicle that was leased to someone or used by a car rental company. That way, you get a reliable car with newer technology without having to endure the vehicle’s most significant period of depreciation.
Spending too much on your home
During and just after the peak of the COVID-19 pandemic, home prices soared. Property ownership quickly became little more than a dream for many people, even in places that used to be affordable.
You might be tempted to simply pay up to get what you want. However, spending too much on a home is likely to result in regret.
To that end, it can be worth waiting until the market cools, or until you find a more moderately priced home that still meets your needs and desires. Remember, only fools rush in.
Investing too conservatively
Conventional financial wisdom suggests that investors should not put all of their eggs in one basket. For example, consider the recent crypto currency craze — and crash — as a cautionary tale about the importance of managing your risks.
However, that doesn’t mean you should avoid risk altogether. In fact, riskier assets such as stocks can offer a high return on investment, and it is difficult to get that type of return without taking some risk.
There are many things you can do — such as diversifying your portfolio and remembering that investing is a marathon, not a sprint — to help mitigate the risk. If you’re not quite sure how to do this, consider consulting with a financial advisor who can help.
Using your home equity for frivolous things
Refinancing your home is often a smart move, especially if you took out a mortgage with a high interest rate and you can get a lower rate.
However, it’s never wise to refinance simply so you can get your hands on cash for frivolous things like an expensive vacation.
Tapping into your home equity can be wise, but only for the right reasons. Again, talk to a financial advisor if you are unsure about whether this move is right for you and your circumstances.
Putting off saving for retirement
Failing to save more for retirement is the No. 1 financial regret Americans share, according to a Bankrate.com survey.
That’s why you should start saving in a 401(k) as soon as you join the workforce and continue to put away money until the moment you begin your golden years. With any luck, your employer will match a portion of your 401(k) contributions, allowing you to super-charge your savings efforts.
Starting to save for retirement from an early age can be the difference between working for the rest of your life and having the time — and the money — to enjoy life as a senior citizen.
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Figuring out how to live your best financial life is both an art and a science. But if you are not careful, you might find yourself living with major money regrets.
Fortunately, a little education goes a long way. Now that you are aware of these money mistakes, do your best to avoid them. Steering clear of these blunders can keep you out of trouble and help you build a fat savings account.