1. Mistake
Most people will agree earning money is hard work but too many of them don’t know where their money goes when asked. People do not work as hard at keeping their money as earning it.
Solution
You need to be intentional with your spending. Pre-spend your money before the month begins. We call this a Spending Plan (budget). It is your plan of how and where your money will be spent. By acting deliberately you can ensure your spending reflects your values and goals.
2. Mistake
Many people have no money set aside for unexpected emergencies. We will all have bad things happen to us, the only unexpected part is when. Only 39% of Americans can cover a $1000 emergency.
Solution
Life happens. My grandma used to say she was “saving for a rainy day”. One day when I was about 12, I asked her why she saved for a rainy day. She smiled wisely and said, “Meg have you ever been caught out in the rain?” I answered yes I had. She then asked, “Did you like it?” No, I responded, I didn’t like my hair plastered to my head and my wet soggy tennis shoes making it hard for me to run home. I was scared of the thunder and lightning and just wanted to be safe and warm. “Meg,” she answered softly, “It is always going to rain again, be ready and you won’t be unhappily surprised.”
Having an emergency fund is your umbrella. Start with $1000.
3. Mistake
Asking “what is the monthly payment and can I afford it” instead of “what does this cost”. When you use debt (loans or credit card charges) you have committed future money as if you know what the future is going to be.
Solution
This type of thinking goes great... until something happens. (See Mistake 2.) Things change. Right now you think you can afford a $750 payment but what happens if you lose your job, your hours are cut, or you can’t work due to a health problem. What if one parent would like to stay home with a new baby? What if you want to relocate closer to family?
Piled up debt (and its ongoing payments) will limit your future options. Instead, save money for the purchase (pay yourself the payment, and keep the interest) and pay for it in full. Then when those life changes bring opportunities, you are free to make choices based on what you want, not on what you can afford.
4. Mistake
Buying a home before you are financially ready or the sister to this mistake, buying a home at the very top of your qualified range.
Solution
Be debt free before you go house shopping. Home ownership costs money beyond the purchase price. A new homeowner is now responsible for not only the utilities but the physical upkeep of the home as well. What happens if you can barely make the mortgage payment and your furnace goes out? A window gets broken? The roof develops a leak? The refrigerator dies?
A home purchased when you are in a secure financial position will enable you to deal with the ongoing expenses. Instead of a major emergency, you now have an inconvenience.
5. Mistake
Believing personal finance is too complicated to understand so you do nothing or hand over your money decisions to others.
Solution
“They said” and “I heard” are bad financial planning solutions.
Knowledge is power. Which is why you need to understand the basics of personal finance. Seek out information and professionals who will help you gain knowledge so you are confident in making your own decisions. Ultimately, you have to be in charge of your personal financial life, not someone else.
As financial coaches we help busy parents who feel stressed over the expense of kids' activities while additionally trying to save for the future. We help them Find, Keep, and Grow their money through simple processes and tools so they can live their life with confidence.
Looking for some accountability in wrestling with these and other money mistakes? Set up your free consultation today. https://calendly.com/knapperfinancialcoaching
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