This lesson offers the top money mistakes we should teach our kids to avoid. And hopefully, avoid them ourselves.
Keeping up with others
A common money mistake that has been around for a long time is spending just to keep up with others.
This is made harder in our advertiser-driven world.
It is a huge money mistake to try to match someone else’s lifestyle.
Only spending on things you really need may prevent you from enjoying a few indulgences, but the upside is an enjoyable life in the future.
Paying interest on credit cards
Credit card debt is a bad thing. A VERY BAD THING.
Paying 20 percent on a credit card debt while earning 0.2 percent on your savings is a money mistake to avoid.
If you have credit card debt, pay it off as quickly as possible. Leave yourself an emergency cushion, but use the bulk of your savings to pay off that credit card debt.
Buying new instead of used
When I was growing up in the ’50s and ’60s, if a car had 70,000 miles, it was ready for the junkyard.
Today, cars drive well, even with hundreds of thousands of miles.
They say a car loses $10,000 as soon as you drive it off the lot, so if money is tight, buy used.
Putting that $10,000 in the bank to use to buy your next car with cash is what I do.
Also, it is not just cars; consider buying used for other goods as well, such as books, sports gear, and appliances.
Be alert to automatic renewals and ongoing monthly charges for services you no longer use.
Scan your monthly bills carefully. If you don’t want that extra phone service, gym membership, subscription, or extra cable network you’ve been paying for, pick up the phone and cancel it.
I do this. I periodically think about what I am paying for that I no longer need to pay for.
Letting bank fees drain your account
Switch to a bank that offers free checking. Avoid using out-of-network ATMs, and stay on top of your balance to avoid overdraft fees.
Not saving enough is a common money mistake. Saving can seem daunting, but with a little dedication, you can do just fine.
Ignoring your employer’s 401(k) match.
You’re throwing away money if you don’t claim every dollar your employer will contribute to your retirement plan.
Find a way to put in more of your own money, even if it means giving up that morning latte. (Wake-up call: That $5 coffee every day is costing you about $150 a month, or $1,800 a year. Enough said.)
Not taking advantage of Compound Interest
Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal.
Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.
Think of it this way: instead of paying $300 a month for five years to buy a car on credit, drive your old car for five more years but put the same $300 a month into an interest-bearing account. Then, use the accumulated savings to buy your next car for cash and avoid paying interest.
Why pay the bank interest when you can get them to pay you interest?
Other Money Mistakes to avoid
Not Tracking Your Money
I use Quicken. I’ve used Quicken for over 20 years. Before Quicken, I used a program called Money and Sense.
Not accounting for your money is a huge money mistake.
You don’t have to pay for Quicken. There are other options, like simply using paper and pencil or Excel. And when you read this, there may be some free programs out there.
You might want to check out some of these links.