Being broke sucks! Let’s just admit that even before we get into the article. Not having money is one of the worst things in the world especially when you are working hard for your money. It creates a feeling of resentment and panic when you feel like you are always struggling to stay on top of everything financially. The great news is that there is a solution to this problem. If you are aware of the money mistakes that are keeping you broke, then you can work on becoming more financially responsible.
These money mistakes that are keeping you broke are more common than you think. Admitting you have a problem and working towards resolving it is half the problem. As you go through this article remember millions of Americans live paycheck to paycheck. To stop this trend, it is important to face the mistakes that we make with money and work on being better stewards of our finances.
Table of Contents
Money Mistakes that Are Keeping You Broke
Living Beyond Your Means
The first and most important thing is to stop living beyond your means. When you spend more money than you earn it becomes a constant cycle of trying to catch up with your bills and other things that you have to pay for. It is not that we don’t make enough money it is that we spend money we haven’t earned.
To stop this the first thing to do is to understand your money. Analyze how much money you have earned and how much you have spent in the past week. This will quickly point out areas that you can cut back and where you are actually wasting money. If you find yourself spending more money than you make, then you know that you are living beyond your means.
Some of the signs that you are living beyond your means include:
- Living in a house where the rent or mortgage takes back more than 80% of your income.
- Always maxing out on credit cards.
- Spending way too much on entertainment.
- Buying things that you don’t need to be trendy.
- Consistent overdrafts.
Make it a goal this year to cut back and start living within or even below your means. This will make you happier as you have more control of your money. Look at this post on how your household expenses should be budgeted to have an idea of how to spend your money according to Dave Ramsey.
Not Having A Savings Plan
Most people do not have a real savings plan. Usually they spend and save whatever is left over. Lacking a savings strategy is a money mistake that can be avoided by creating a plan for saving money intentionally. The best way to start is to assess your income, expenses and amount of debt you have. From there you can decide how much you can afford to save and still stay afloat.
Your goal shouldn’t be to save so much that you put a strain on yourself because in the end you will start to hate saving. Seat down and set a goal then create a savings plan. See this savings challenge that I designed for saving up for an emergency fund. Remember money in the bank is like a security blanket. It is readily available if you have an emergency or if you have an investment you want to make.
You Never Budget
I always insist on having a budget because it creates guard rails for your financial wellbeing. If you don’t budget, then you never know how much you are spending. This means that you spend money without a plan which is a problem. Blind spending lands people in trouble because you most certainly always think you have more money than you actually do.
Start creating a budget that you can follow weekly, biweekly or monthly. Make sure you account for all the important expenses that you pay month to month. Use the budget to ensure that you only spend what you have earned and if you need to defer spending then factor that into the budget.
Here is a budget template that I designed for biweekly budgeting. You simply add up all the money you make in two weeks and subtract all you have to pay for including savings. The goal should always to have some money left over or not to overspend because that means that you are probably living beyond your means.
Spending to Impress
I have been a victim of this mistake so many times where I spend money just to show off. While this gives me a sense of instant gratification it leaves me feeling guilty. I ask myself questions like, “Was it really necessary that I buy that expensive bag or shoes?” Remember don’t spend money you don’t have to impress people it will just make you unhappy.
To ensure that I don’t spend money to impress people I hold off on buying something for at least a week. If I still want that thing by the end of the week then I make sure there is money in the budget for it. Again, don’t use credit cards to buy things to impress people. It will leave you with debt that will tie you down and slow down your financial progress.
Another trick that I use is to ask a friend who is like minded if I should spend money on an overpriced item. If they tell you not to waste your money then just leave it. The thing is that with consumer goods you never recover your money no matter how beautiful the item is. It’s money down the drain. Avoid these money mistakes that are keeping you broke by avoiding the trendiest things out there because you don’t need them.
Not Saying No
There is so much power in that little word “No”. Saying no when a friend invites you out and you have a no spending challenge going on or saying no to a sale email that pops up on your browser. Just because something is on sale doesn’t mean that you should buy it. Also just because someone offered a ‘once in a lifetime’ deal doesn’t mean you need to jump on it. One trick is to unsubscribe to those brand names if you really want to avoid spending.
We always think because we have money in the bank then we can spend it or that we have earned whatever we want to buy. The question should always be, “Is it really worth it?” How much of your hard-earned money are you spending on that thing? If you make $20 an hour and you get a raise suddenly $25 an hour seems like you won the lottery. You then decide that you want to upgrade your car. The thing is that $5 raise that you worked so hard to get will not cover the debt you’ll incur in car payments.
Ask yourself, “How much of my time am I really giving away by buying this thing?” You’ll find that often that will deter you from buying that thing. If in 40 hours you make $1,000 and your new car will cost $500 a month that’s 20 hours of your life. Think beyond the small picture as you make these decisions.
Avoid Talking About Money
One of the other big money mistakes that are keeping you broke is avoiding the money talk. Couples especially never want to talk about money because it makes you vulnerable especially if one person makes more money or is more frugal with money. Some people are embarrassed and some people just don’t know where to start.
This is a huge mistake because you are living life with blinders on. If anything should happen to your spouse, you don’t want to be surprised by the state of your financial affairs. To resolve this set time to talk about money. Clearly point out how much you make and what you individually and communally spend your money on. This will give you a clear status of your money and you can work on issues together.
If one spouse is better with money, ask them to help you with saving and getting out of debt. Create financial goals as a couple and stay tuned in on what goes on with your money.
Using Too Much Credit
Whenever I swipe a credit card, I always ensure that in the back of my mind I set an internal alarm to ensure that I pay the full balance. Credit card interest can be huge, and it can be a drain on money if left unattended. Monitor how much you spend using your credit cards and stay on top of them.
I do not think credit cards are bad because they have rewards that you can leverage. The key is to ensure that you always pay the full balance and that you never get behind. Also avoid charging huge amounts on your credit card because this impacts you debt to income ratio which can be bad for your credit score especially if you want to borrow money in the near future.
Remember that you can always work towards rebuilding your credit. The difference between a good credit score and a bad credit score could cost you thousands of dollars over the years. To repair your credit score start here.
Taking on Too Many Projects
For entrepreneurial people who want to get in on the ‘deal’ they usually find themselves taking on too many projects. This leaves them frustrated and in debt. What typically happens is that they end up working more to stay ahead and they are always stressed out about money. This is one of the common money mistakes that are keeping you broke if you are self employed.
To avoid this, assess how much you have going on and how much you can take on without straining your budget too much. There is risk and with it comes great gains but it is not worth getting into heavy debt and losing sleep over. Talk to a financial planner if necessary, to see how you can invest your money to get the most gains. Sometimes you don’t have to put in so much to make a significant gain.
Deferring Retirement Planning
This is one of the biggest mistakes among millennials. They do not think about retirement which is one of the worst mistakes that you can make. Nobody wants to work forever and retirement planning helps you avoid that. Start taking advantage of retirement plans at work or invest individually.
There are many investment vehicles that you can use to start planning for retirement and I have included a post here on what deferring retirement can do to your future. Again talk to a financial planner and get started with planning and securing your future. If you are not taking advantage of the matching plans that your company offers you are literally giving up free money!
You Don’t Find Ways to Save More
You set up a savings plan for yourself and your family but you don’t find ways to optimize your savings. Every day there is usually an opportunity to save more on groceries, utilities, phones, insurance and just about anything. Take a minute and assess what you spend your money and find more ways to save even more money. Living a frugal lifestyle means that you constantly find ways to pay yourself back.
Here are 9 things I stopped buying to save money. Real life and everyday things that you can give up to save more money. Perhaps it’s time to give up the coffee run, or the lunch run and start making your own coffee and food. Do you have a park that you can use instead of the gym, then stop subscribing to a gym you never go to? Are there subscriptions that you pay for but never use it’s time to get rid of them.
For a total money makeover it’s important to assess your finances as a whole. Find the money mistakes that are keeping you broke and work on stopping them. Share this article with a friend and dive into finances to find opportunities to be better with money!
