Everyone makes mistakes – especially when it comes to our finances. We all have our own struggles with money, but some are a lot harder to overcome than others. The important thing is that we learn from these mistakes so that we don’t repeat them – or better yet, never make them in the first place.
1. We Spend Money We Don’t Have
It’s simple – by spending money we don’t have, we are putting ourselves into debt. Credit cards, lines of credit, student loans, car loans and mortgages have become so common place, they are arguably necessities in today’s society. The average person isn’t going to be able to pay cash upfront for a 4 year degree or a house, which makes it almost impossible to get through life without accumulating debt in one form another.
The amount of debt we have will vary, of course, as will the type of debt. Mortgages and student loan debts are generally regarded as “good debts” because they are investments that will grow and create value. They are things we “need”.
Credit card debt, consumer debt, or spending money we don’t have on our “wants” are generally regarded as “bad debts”. They quickly lose their value. In most cases, we can avoid these bad debts with a little self-discipline: if you don’t need it and can’t afford it – don’t buy it.
Good debts, bad debts, ugly debts. It doesn’t matter what we call it. The bottom line is we should all strive to stop spending money we don’t have.
2. We Don’t Want to Change
We stay in school an extra year (or two, or three) and get ourselves further into debt. We settle into jobs that don’t pay us what we’re worth or don’t offer room for advancment. We need (or want) more money but aren’t willing to put in overtime, start a side-hustle, or take on a part-time job. We’re not willing to give up cable or a vacation in order to pay off a debt or save for retirement. Basically, we don’t like the financial situation we are in, but we don’t want to change.
Unfortunately, our situations aren’t going to get any better unless we do something to make it better. It could be a big change (like moving to a new city for a better paying job) or it could be a small change (like drinking water at a restaurant instead of ordering a drink). It all depends on the situation we are currently in and the situation we aspire to be in.
Bigger changes are scary and stressful, even if they have a positive outcome. So why not start by making small changes? We can opt for a smaller data plan for our cell phone or cancel the premium package for our cable. We can meet friends for lunch instead of dinner. We can skip the Starbucks or Tim Horton’s and brew our own coffee at home. There are so many little things we can change that will help improve our financial situation without interfering with the lives we don’t want to change.
3. We Don’t Know Where Our Money is Going
Following a budget and tracking our spending are both very important when it comes to managing our finances and is something we should all be doing. But knowing where our money is going is more than just data in an app or spreadsheet.
Do you know how much interest you pay per day on your mortgage? Do you know and understand the terms of your credit card? Do you know if you have a fixed or variable interest rate on your student loan? Do you know what happens if you miss a car payment?
If you don’t know or only have a general idea, call up your bank or lender and ask. (And while you’re at it, see if there is anything you can do to make a positive change – as per point #2 – such as getting a discount or lower interest rate.) Not knowing the fine print could potentially be costly, which is why we should take some time to make sure we understand where our money is going.