Growing up with less means that your parents aren’t always able to show how best to manage money, so as an adult you make lots of money mistakes.
When scraping by, money is shuffled around to meet the immediate need. My parents could not model financial success for me, so I learned through trial and error, research, and advice from qualified sources. However, I made several financial mistakes on the journey to financial stability.
Speaking with people younger than me, older than me, as well as my peers about money helps me realize how many people are in the same boat. It can be hard to focus on financial stability when in the thick of instability. The goal of the list below is to help at least one person avoid the same mistakes I made when living paycheck to paycheck.
Disclaimer: I am not a financial advisor. I am not a source for advice on how to become financially stable or how to plan for your future. I cannot create a budget for you, nor can I recommend best practices for your financial health.
Top 5 Financial Mistakes
#1 – Not budgeting: The week before I began college, a large sum of money was sent to my bank account for me to use until the next semester. Within two months, that money was gone. Why? Because I knew nothing about budgeting. I did not really sit down to learn about budgeting entirely until a few years later via a book recommendation from my dad and while learning to use YNAB software. Once I began budgeting, I realized that I had enough money to live comfortably. I just needed to learn how to regulate my personal spending to not live paycheck to paycheck.
#2 – Spending money I do not have: The idea of spending and paying for items later is what the American economy is built upon. Like most people, when I received my first credit card, I spent close to the $1k limit with the idea that I would just make payments on the items I purchased to the credit card company. What I did not understand was the high-interest rate would make paying off that $1k much more difficult on my low wages. It took me a year to pay that credit card off, and I learned that I should not spend money I do not have, especially when using credit. Now I use credit cards based on the money in my bank account, so at the end of each month I can pay off the balance in full and never get charged interest.
#3 – Not saving: If you take nothing else away from this post, SAVE MONEY. It used to be that they only saving I did was small contributions to a retirement fund. However, after experiencing a bit of car trouble that I had to pay for via credit card, I realized the value of savings. After reading several books on financial management, I began an Emergency Fund and a few other savings accounts. Now, when I experience an unexpected expense, I can reach into my savings accounts. and not pay interest on what I could not afford to pay for in the first place.
#4 – Loaning money to friends and family: This is a hard lesson to learn. When family calls to borrow money, the instinct is to give without thinking about the big picture. However, after loaning money and not receiving repayment in the promised amount of time, I learned a big lesson. The only money that I will loan out is money that I can afford to give as a gift. Giving with that lens ensures that I am not loaning out money I will later need for bills, food, or gas.
#5 – Not creating a financial plan: In my twenties, retirement was just an idea. Though I was contributing to a retirement account, financial planning was year to year, not long term. I hit my thirties and began to understand that I needed a plan to actually retire someday. This includes making a decision about how much money I will need to comfortably retire with lots of cash and money for medical expenses. Now I not only create annual financial plans, but five-year plans, and I have a long-term retirement plan as well.
Of course, I make more money than I once did, but these mistakes apply at any income level. Even saving $5 per month is better than having no reserve funds at all. Adding $50 per month to a retirement account will add up over time and is better planning than nothing. Most importantly, if you do not know where your money is spent, you will never know if your financial situation could get worse or improve with small adjustments.
