Money. It’s a medium of exchange. We use it in every transaction involving the purchase of goods and services. Our lives revolve around money. Our personal wealth is measured by how much money we have. Every day, we wake up and go to work because the majority of us needed the income from our work to sustain our daily lives. So why is the average person so afraid to learn how to manage and grow their money? Is it the fear of making mistakes? I don’t know the exact reason, but what I do know is that every mistake is a learning opportunity. Preferably, someone else makes the mistake and we learn from it. In this post, I’ll be sharing the 26 money mistakes that people make. We can all learn from it and should avoid making the same mistakes if possible.
26) Not Getting Paid When You Spend Money
Are you still using cash to pay for all your purchases? If yes, then you’re not getting rewarded when you make your purchases. There are credit cards out there that will give you at least 1% cash back on the total of your purchases without any annual fees. If you are spending money on everyday items like groceries, household bills or utility bills, you can save at least 1% by just using a credit card. Of course, the caveat is that you have to pay your bills in full and on time every month.
25) Neglecting Your Money
If you have multiple chequing accounts at multiple financial institutions or having different investment accounts at different brokerages, then you are neglecting to manage your money. By having too many accounts at different institutions, you’ll be paying more fees, you cannot manage your money efficiently and are not being rewarded for bundling your services. Cut down on the services fees by managing your money at one or two financial institutions.
24) Wasting Money With Bad Debts
With interest rates still close to the all-time low, if you are paying more than 5% per year for any loan, you are paying too much for your debt and wasting your hard earned money. Two of the common mistakes here is obtaining the wrong type of loan or not having a good enough credit history to qualify for a better rate. In the first case, it takes a little research to investigate and find the cheapest type of loans. The second case, it could take months or even years to fix a bad credit history.
23) Not Earning Enough Money
If you’re struggling to put food on the table, you’re either not making enough money or you need a better paying job or you need a second job. If you are still young and are struggling to make ends meet, it’s time to start investing in yourself to either increase your earning potential or looking for employment in a different industry with higher earning potentials. The longer you wait to invest in yourself, the more earning potential you’ll forgo.
22) Can’t Borrow Money
When a person cannot borrow money from any financial institution, there are only a few possibilities. This person either has no credit history, or really bad credit history or bankrupted or doesn’t have sufficient income or already burdened with too much debt. Regardless of what the circumstance is, it’s best to have a pristine credit history and the ability to borrow money even if one doesn’t need to borrow.
21) Don’t Know How To Stretch Your Money
The concept of stretching your money is either through getting more goods for each dollar spent or paying less for the same amount or quality of goods. People that are able to stretch their money can often find great deals through sales clearance, coupons, Groupons, Ebates, and Facebook buy and sell groups in their local area. Why pay regular price when you can pay less for your items. Check out how I stretch my money in a recent post.
20) Insecured About Money
If your money issue is keeping you up at night, it’s either you don’t know how to manage your money or taking too much risks with your money or worrying about not having enough money. These issues can be mitigated and managed with financial literacy and knowledge. The key thing is to take the initiative to improve your financial knowledge and take control of your money instead of letting it control you.
19) Fight About Money
When people have fights/arguments about money, it usually boils down to being transparent and honest about money. Regardless if it’s between spouses, family members, friends or business partners, without transparency and honesty between individuals, people will always fight about money when they encounter financial hardship. To eliminate potential quarrels over money, I’ve highlighted a few methods in my benefits of investing with a partner post to share with you.
18) Ask Your Parents For Money
Your parents had spent thousands raising you, provided you with free food and shelter for quite a few years. Once you are able to earn your own money, it’s not right to go back to your parents and ask for money. It just showed that are still immature, lacks independence and financial responsibility. Show them that you are matured and responsible. Give them a few hundred bucks once in a while to make them happy.
17) Making Money For Other People
If you are still investing in high fees mutual funds and ignoring the low-cost index funds, then you are helping other people make money instead of helping yourself. According to an article on Forbes.com, 90% of the mutual funds out there can’t beat the low-cost S&P 500 index fund. Hence, if you’re not investing in the low-cost index funds, that means 90% of the time, you are helping the fund managers make money instead of yourself.
16) Seduced By Money
Quite often, may people are seduced by the opportunity to make a quick buck in the form of a guarantee returned over a short period of time. For example, these fraudsters lured their victims by offering great returns on their investments while promising to protect their investment principles through syndicated mortgages. The general rule is: greater returns always means greater risks. There is no such thing as a guaranteed investment that provides astronomical returns.
15) Not Growing Your Money
Most people think that investing their money is very difficult or they read some recent news of how volatile the stock market is so they avoid investing their money altogether. This, in turn, led them to either keep their money in savings accounts that earn peanuts or keep their money in principle protecting investment vehicles. If you have a long-term investment horizon like 15 years plus and you are not investing in higher return investment vehicles, then your are most likely not growing your money correctly.
14) Hiding Your Money
You’ve heard of the cliche that some people hiding their money under their mattresses, but inside an old TV set? That’s something new. The Canada Deposit Insurance Corporation (CDIC) provides protection of up to $100,000 for your deposit at any financial institution, there’s no reason so hide your money under your mattresses or inside a TV set. Besides, you risk losing your money to fire, theft, robbery or forgetfulness. In addition, you even lost out on any potential interest if your money is not deposited at a financial institution.
13) Owe Your Friends Money
When your friends lend you money, it’s usually interest-free and out of goodwill and they trust that you’ll be paying them back voluntarily. It’s common courtesy to pay your friend back as soon as you have money and keep your good credit history with them. It’s the same as borrowing money from a financial institution, if you often neglect to pay back your loan, people will stop lending you money.
12) Laundering Your Money
It’s illegal. Don’t do it. If you get caught with money laundering, you’ll definitely lose more than the amount that you’re trying to launder. The governments may freeze or confiscate all your assets. Worst of all, you’ll most likely be in a jail somewhere and would not have any opportunity to spend any of your money. I am too pretty to go to jail, so I’ll definitely not make this mistake.
11) Not Protecting Your Money
Not many people put a lot of thoughts into protecting their money in the form of a will (I must admit, I am still guilty of this as I don’t have a will and I should). To prevent the government from arbitrarily distributing your money or people in your family fighting over your money after you’re gone. It’s best to have a will to clearly state who should get what in the case that you’re gone from this world. It’s also prudent to clearly explain your reasons for how you divide your assets among your family members to prevent them from fighting over your estate.
10) Missing Out On Free Money
There are free money available everywhere if you look hard enough. For example, some employers either provide stock options as benefits or through employee share ownership plans (ESOP). If you invest in the company’s stock, you’ll get a portion of your savings for free. If you invest in your Registered Retirement Savings Plan (RRSP) or your kid’s Registered Education Savings Plan (RESP), you’ll get a tax refund or a free government grant. All these are free money that’s available for people to take advantage of. See how I get a 72% return when I use just three saving vehicles: ESOP, RRSP, and RESP.
9) Don’t Know How To Manage Your Money
As I’ve mentioned at the beginning of the post, our lives revolve around money. If we need to use money all of our lives, wouldn’t it be logical for us to know how to manage our money? If we are able to learn how to manage our money at a young age, then we’ll reap the benefit for the rest of our lives. In addition, the earlier we learn to manage our money, the earlier we are in control. You would rather be in control of your money, or let the money control you?
8) Trust The Wrong People With Your Money
It’s okay to hire help to manage your money, but never give total control of your money to anyone. Think of Bernie Madoff and how many people entrusted him with their money and ended up losing a fortune because he was running a Ponzi scheme. The rule of thumb is: it’s your money, and you should take full responsibility for it. Otherwise, you are just rolling the dice and hoping for the best.
7) Not Saving Enough Money
If you are living pay cheque to pay cheque and needs to go into debt if you don’t have your pay cheque for a month or two, then you are not saving enough money. Some people believe in having a rainy day fund or emergency fund, I believe in access to funds. When you are having difficulty just to build a cushion of one or two months of expenses, you are either spending too much of your income or you’re not making enough. In the former case, you can always cut back on expenses and the ladder is to increase your current source of income or add additional sources of income.
6) Only Have One Source To Generate Money
In today’s fast-paced world where businesses are constantly adapting to the economic environment and no job is safe for life, if you only have one source of income (employment), then your financial well-being is at risk. Everyone starts with one source to generate money, but if you are not slowly increasing or diversifying your income sources, then you risk jeopardizing your financial well-being if you lose that income source. To see how you can increase your income sources, check out my saving a million dollars series post to see how I have seven income sources to help me generate passive income.
5) Spending Too Much Money
If you are spending more money than you are earning, then you are either spending too much money or spending money that you did not earn. Depending on the monthly shortfall, and the interest rates that you pay for that shortfall, it may not seem like a huge issue in the short-term. However, people will go into a long-term debt spiral if they don’t rein in their spending habits and they put all of their debts into their high-interest credit cards.
4) Showing Off Your Money
Some people get the short-term satisfaction of showing off to others that they can afford the latest gadgets, the expensive luxury cars, or the designer clothes. We in the personal finance community call these actions keeping up with the Jones and it usually destroys your wealth. On the other hand, it’s much better to live modestly and purchase income producing assets that will increase your wealth over time rather than spending foolishly on materialistic possessions that can only provide short-term satisfactions.
3) Jealous Of Other People’s Money
Do you know someone who makes a lot of money? If you do, then you are lucky in a way. Some people tend to be jealous of people when those people make more or a lot more money than them. The reason why I say that you’re lucky when you know someone who has money is that you can learn from them. Instead of being jealous of their money, you can ask them how they make their money. What better way to become a millionaire than to learn from someone who is already a millionaire?
2) Not Talk About Money
Is talking about money a taboo to you? Are you afraid to be judged because of your money? Well, have no fear. There is no need to fear what other people think of you because of the amount of assets or debts that you own. The goals for talking about money is to learn and benefit from each other’s experience. What actions will lead to greater wealth and what actions will lead to destroying wealth? If we can put aside the fear, judgment, and resentment, and concentrate on the benefits, knowledge, and literacy, everyone will be better off when they talk about money.
1) Not Teaching Your Kids About Money
Based on an article posted on Time.com about 70% of wealthy families lose their wealth by the second generation and 90% by the third generation. If you have the choice, would you pass on your financial knowledge or your wealth to your kids? My motto is to raise financially responsible kids so they can create their own wealth and pass on their knowledge to their kids. It’s better to teach them how to earn a dollar than to give them a dollar.
My Two Cents
Money is a very powerful tool. When used intelligently and responsibly, it can help us build great wealth and provide us with the financial freedom to do what we wish. However, when it’s being used irresponsibly, it can ruin and destroy our lives. Be money smart. Take control of your money and have it working for your instead of you working for money.
How important is money to you? What money mistakes do you want to avoid?