5 Financial Mistakes Most People Make
Updated: Apr 12, 2020
Too many people make these common-sense financial mistakes that costs them too much. People have no idea where their money is going and wonder why they are stuck in a large financial hole. These are 5 of the most common mistakes people make with money, as well as the solution to fix them.
1) Not Having a Plan.
A quote by Benjamin Franklin that I love is, "When you fail to plan, you plan to fail." When people do not make a simple written plan for how they handle their money, they are allowing the rest of their financial mistakes to be made without any accountability. Without a plan, you will wonder where all of your money went. By creating a budget every month, you will have the ability to control your spending and build wealth so you can soon give, invest, and live a financially worry-free life.
2) Borrowing Too Much Money.
Many people in our society have student loan debt, car debt, mortgage payments, credit card debt, and other miscellaneous loans and debts. However, I a not surprised. The United States of America is a consumer society. According to Dave Ramsey in The Total Money Makeover, “We buy things we don't need with money we don't have to impress people we don't like.” According to CNBC.com, 71% of U.S. workers are in debt.
Many millionaires, when asked what the key component to their success was stated, "GETTING out of debt and STAYING out of debt!" Just imagine a life where you did not owe anybody any money! You had full control of your income! America, as a whole borrows too much money, and that is a HUGE problem!
3) Budgeting Incorrectly or Not Having One at All.
According to CNBC.com, 78% of full-time workers live paycheck-to-paycheck. This is an increase of 3% from last year's 75%. From the same source, only 39% of American's can could cover a $1,000 emergency without going into debt. This is an issue in the budget or, perhaps, even the absence of one. When budgeting, the order should be done as follows:
With GIVING you should tithe. This means giving 10% of your income to churches, charities, etc. We are not going to tell you that this percentage is a requirement, but it is highly encouraged. However, every budget should include a "GIVING" category and should be funded FIRST.
SECOND should be SAVING. The general rule of thumb is to save 20% of your income.
THIRD is your NECESSITIES. These include anything that is necessary to survival; Food for nutrients, water for hydration, shelter for protection, and transportation for reliable transport to work. There are circumstantial needs that are occasionally budgeted for here.
FOURTH and LAST, is your WANTS. This is everything that does not apply to the requirements above.
Here is the order in which most people budget:
Notice, this is almost the polar opposite of how budgeting SHOULD be done. Think about this for a minute. You do not have to take my word for this method, but I know it works. I know that it works because this has helped others to become debt-free, save tens of thousands of dollars, and even become millionaires on their occupational incomes alone!
If you are like most American's you are living paycheck-to-paycheck and consider yourself sinking and losing the will to swim because you are not making any headway. However, if you simply correct your technique, you will be surprised just how much further and faster you can swim to shore! But sadly, most are not willing to change... But why?
These people are not willing to change because they are not aware of their improper mistakes. They see that their budget does not work for them and say, "Well, budgeting does not work for me." This is never the case. In fact, people who do not budget at all are worse off than those who budget incorrectly!
People who budget incorrectly, or not at all, are more likely to live beyond their means. What does this mean? Living beyond your means just means that you spend more money than you make. A.K.A., you live richer than you are. Let's look at some numbers.
As mentioned above, you want to GIVE 10% of your income away, and SAVE 20% of your income. When combined, this makes up 30% of your income. That leaves 70% of your income for the following categories. Let's use hypothetical numbers for this next part. Let's say that your NEEDS are 30% of your income and your WANTS are 40% of your income. Once this is planned out this way, it is hard to overspend on wants and break the budget. You will see 70% of your budget to use for your own personal uses rather than the full 100%.
On the other hand, if you budget your NEEDS first, you can always afford more NEEDS. As a result, this reduces the amount of money GIVEN and SAVED. Most people are not going to reduce the percentage allotted for WANTS, since America is a consumer society. For example, you budget for you NEEDS first. You see that you have 100% of your budget to use. As a result, you buy a new car and a bigger house.
What used to be 30% of your income for NEEDS becomes 50%. Second, you budget for
WANTS. You are not willing to buy less because you like the amount of stuff you can buy! It makes you feel good. Therefore, WANTS takes up 40% of your budget. Suddenly, 90% of your income is gone! To make it worse, you have not put ANY aside for SAVING or GIVING. You only have 10% left to budget. 10% is what is supposed to be budgeted for GIVING alone. This leaves no money saved.
If you want to swim faster to security than others around you, change your technique.
4) Only Having One Source of Income.
While your income should be your primary source of income, it should not be your only source of income! Listed, below, are 23 additional sources of income that you can generate aside from your primary job.
Real Estate Investing
Invest in Other Companies
Make a Physical Product That Others Need
Write an E-book and Self-Publish on Amazon
Create (and Monetize) a Blog
Do Odd Jobs for Others (Rake Leaves, Mow Yards, etc.)
Launch an Online Resource
Host an Event
Design Advertisements for Businesses
Host (and Monetize) a Podcast
Make Money Doing Things You Do Anyway
Sell Pictures Online
Make (and Monetize) YouTube Videos
Design Websites for People
Build an App
Rent Extra Rooms with AirBNB
Have a Garage Sale
Create an Online Course
Make an Informational Guide Online
Sell Ads on Your Car
Without additional sources of income, if you get fired from your job, you will have very little cushion to save you. Especially if you have no money put aside into your savings account.
If you do these things, you will generate extra revenue and be able to give, save, invest, and spend more money!
5) Not "Pinching-Pennies."
"Penny-pinching" is a term that has a negative connotation in today's society. However, this term is used to refer to someone who has mastered the art of frugality. Being frugal means living below your means. There are a number of ways to do this, but two of the easiest ways to practice "penny-pinching" is to avoid name brands and to use discounts and coupons to your advantage.
Name brands, to us, mean high quality. Just because this guarantees high quality does not mean that there are not equally great quality products at lower prices. In my personal experience, by experimenting with non-name brand products (often generic store brand), I have found several substitutes that I love better than the name brand products for much less money!
In the end, even saving pennies adds up. It is not uncommon for me to save $10+ every trip I make to the grocery store just by using this tip alone!
Coupons, and discounts, can go a long way too! Groupon.com is a website that I highly suggest! Yes, you do have to spend some money for coupons, but you save more than you spend! They have everything from Amazon to Walmart! There ARE other means of acquiring coupons such as, local newspapers, in-store, or other websites.
These are just 5 financial mistakes that many people make! You can change your financial life for the better by not falling for these! Practice makes perfect. Perfect your technique and you can swim further and faster, than those around you, to the island of wealth and riches!