My 3 Biggest Money Mistakes & How You Can Avoid Them
May 25, 2012
[Today I’ve asked Miranda if she could reflect on the big money mistakes she’s made in life and share ways to help you avoid making them as well, thanks Miranda!]
Like most of us, I’ve made my share of money mistakes. I’ve been fortunate that I’ve been able to recover from most of them without too much damage to my finances. However, there are a few that still affect my finances years later, even after they’ve been mostly corrected. Here they are and with how you might be able to avoid falling into the same traps:
1. Piling On the Debt as a College Student
One of the most common money mistakes made is getting into debt. Indeed, many of us pile on the debt as a college student.
Not only did I max out credit cards during my time as an undergrad, but I also used student loans unnecessarily. I had a full-tuition scholarship. My parents paid for housing (and after two years, I was a Resident Advisor with free housing and a stipend). I had a part-time job on campus. There was no reason for me to take out the student loans I did. But they were available to me, so I took them.
I also stopped saving up for things, and instead used my credit card for the instant gratification. It’s easy to lose track of how much you are spending when all you have to do is swipe a credit card, and I didn’t use any sort of method (pen and paper or computer based) to track my spending. In order to avoid all the debt, it makes sense to plan your expenses, and track your spending:
- Be realistic: Just because you can get a certain amount in loans doesn’t mean you have to. Don’t borrow if you don’t need to. If you do borrow, only borrow the minimum that you need.
- Only spend money you actually have in hand. This means developing discipline and avoiding the attraction of instant gratification. Save up for what you want.
- Track your spending. This way you know where your money is going. Track credit card spending, and only spend what you can pay off each month.
2. Lack of Communication with My Life Partner
Even after 10 years of marriage, my husband and I still have miscommunications — including about money. There were times that I thought we were doing one thing with our money, and he thought we were doing another. Sometimes, we didn’t talk about major purchases. He’d go to spend $100 on something, and I had already spent $200 on something else. In some cases, our lack of communication led to overdrafts (and the fees that accompanied them).
Other times, it meant that I we were working toward different financial goals at the same time. Imagine my surprise when he announced that he wanted to buy a home when I thought we were trying to pay off the rest of the credit card debt and pay off the car loan!
All of a sudden, we were trying to buy a house, and instead of saving for a down payment, I had been aggressively paying off loans. That led to a bigger mortgage than I wanted, as well as a little more debt as I used the credit cards to buy everything for two months so we could have cash to have something for a down payment.
In order to avoid these difficulties, it’s a good idea to communicate about expectations, and touch base regularly with your life partner. Whether it’s allowance for the kids, retirement savings, or your next family vacation, shared goals are important. For the most part, my husband and I are on the same page now. And it’s much less costly.
3. Failure to Account for Taxes
Remember that the government wants a cut of what you make. When I first started my home business, I didn’t account for taxes, and were surprised with a rather hefty tax bill one year. We had to raid the emergency fund to pay it.
In order to avoid this problem, realize that you have different tax obligations when you work for yourself. Set money aside to pay quarterly taxes to avoid costly problems with the IRS and read a good book about small business taxes.
What have been some of your biggest money mistakes?
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