financially stressed

10 Money Mistakes to Avoid to Build Wealth

We’ve all made mistakes in our lives, especially when it comes to our money.  The important thing is that we learn from those mistakes. Here are 10 money mistakes to avoid if you are wanting to win with money.

1. Buying a new car

The average car payment in the Unites States is about $550 a month for 69 months.  And most people will continue to have car payments for the rest of their lives, almost as if it’s a mortgage or something.  The fact of the matter is that you don’t need a car payment, nor should you ever have one.

If you were to invest the average car payment of $550 into a retirement account like a 401(k) or IRA, you would have over $4M come retirement.

Another reason that buying a new car is not a good idea is because of the massive amount of depreciation.  A brand new car is likely to lose 70 percent of its value in the first 4 years of you having it.  So if you purchase a brand new car for $30k, that makes it a $9k car in 4 years (and you’re probably still paying on it).  When you turn $30k into $9k, that’s not what I call a good investment (you’d be better off burying thirty grand in your backyard and leaving it for four years).

2. Using debt

Whether it’s car loans, student loans, or credit cards, using debt is not something you want to be doing.  Almost every millionaire will tell you this.  That is to say, avoid borrowing money at all costs.

Lest you think millionaires are mistaken, let me remind you that most millionaires did not inherit their wealth.  They became rich during their own lifetime, living on these principles:  living below their means, avoiding debt, saving their money, and investing as much as they could. I think they know what they’re talking about.

3. Not living on a budget

It never ceases to amaze me how many people think they don’t need to live on a budget.  There seems to be a negative connotation with the word “budget.”  I don’t know what it is, but when you say “budget,” people seem to look confused as if they never heard that word before.  They think they make enough money to not have to worry about a budget, but this could not be further from the truth.

I think this way of thinking is simply confused because “budget” doesn’t mean you’re broke, poor, or whatever. It simply means that you’re responsible: you have a certain amount of money allocated for different things. And why shouldn’t this be the case?  I mean, after all, your income is limited.  Should you not limit your outcome as well?  Of course you should, and that’s what it means to live on a budget.

4. Not saving for emergencies

Surely you’d think I’d be lying if I told you it would never rain again, so believe me when I tell you emergencies are gonna happen. You are going to have emergencies come up, so prepare for them.  And, no, this doesn’t mean charge it to a credit card.  If that’s your emergency plan, then you don’t have a plan at all, but that’s the case with many people, unfortunately.

The fact of the matter is this:  you have to be saving for emergencies because you know they’re gonna happen.  When you fail to plan, you plan to fail, and planning for emergencies by saving is something you must do if you are to win with money.  Most wealthy people would suggest saving 3-6 months of expenses for emergencies; that’s what I would recommend as well.

5. Not saving for retirement

Like I mentioned earlier, income is limited; we only make so much, so it’s important that we capture as much of that as we can in order to have a chance at retirement.

Certainly you can’t save everything you make; obviously you need some money to live on.  However, you can capture a percentage. And most wealthy people would recommend saving about 15 percent of your income.

However, you can’t simply let this money sit in a saving account; it wouldn’t be near enough.  For example, if you made $50k a year for 40 years and saved 15 percent of that each year, you’d only have $300k to retire on, and that’s no where near enough . . . You have to invest it.

If you were to invest that 15 percent each year for 40 years, you’d have almost $5M; that would be sufficient. That’s something you could retire on.  However, if you try to do this without investing, or even worse not saving at all, you simply won’t have enough.

6. Blowing your tax refund

For some people, a tax return is the only chance they have at saving money. The last thing you want to do is blow that money on some big purchase.

It’s not uncommon for people to get $2000 or so on their tax returns.  If that’s all you ever saved or invested, that would be enough to make you a millionaire by retirement.

I would do my best to be intentional with large sums of money like tax returns and such.  The last thing you want to do is blow that money on something stupid.  Why not make a habit of doing something that might build you wealth instead? Investing your tax return each year instead of blowing it might be the very reason you become a millionaire come retirement.

7. Buying things you don’t need

Of course we’re all guilty of buying things we don’t need. How many times have you mindlessly spent money on things you didn’t need?  Probably a lot; I know I have.

As long as we can learn from these mistakes, we’re making progress; that’s what really matters.

If, however, we continue to carelessly spend our money on things we don’t need, we will never have money to save or invest.  The last thing you want to do is spend every dollar you make; that’s a sure way to set yourself up to fail. We have to change that behavior; we have to get serious about not giving in to every little desire we have. Because at the end of the day, do you really need to? Probably not.  Make it a priority to stop wasting your hard-earned money, especially on things you don’t actually need.

8. Eating out often

I don’t know about you, but every time I go out to eat it seems like it cost $60 or more (including the tip), and this isn’t even that expensive of a place! How many times do people go out to eat each week?  I rarely do because I know how expensive it is. At $60 a pop, it doesn’t take long to destroy any reasonable budget.

Going out to eat like this is something that I do once in a great while (a few times a year).  This is reserved for special occasions, for sure.  Even if you reduced eating out by twice a week, that’s over $100 in savings.

If you make a habit out of eating out, it is sure to destroy your budget, and it would be very easy to find yourself in a situation where you are living paycheck to paycheck all the tine. And if you want to win with money, that’s the last thing you should be doing.

9. Buying high priced items

When I have to spend money on something, you better believe I’m buying the cheapest thing possible.  Not because I’m cheap, but because I don’t wanna be broke (there’s a difference).

There’s no reason to spend all your money buying high priced items.  Why do that?  Why not buy cheaper options instead?  The truth is that if you make a habit out of buying high priced items, you’ll never be able to save money.  And there are so many cheaper option out there.  In the event that you have to buy something, just go with something cheaper. This will make sure you don’t spend more money than you have to.

10. Increasing your cost of living

My mom always told me, “The more money you make, the more money you spend.”  This seems to be the motto of the 21st century.

People seem to think that if they make a dollar, they have to spend it. But why think that? Why not save or invest instead?

When people get a raise, or a better job making more money, they’re inclination is to spend that extra money, to add another monthly bill to their budget. Why do that?  Why not save that money instead?

It should be the case that the more money you make, the more money you save!  And that very well might be the case, if you are committed to saving as much money as possible.

There’s no reason to go out and get another monthly bill just because you have more money coming in; that’s ridiculous. Why not save that money and focus on ways to reduce your cost of living, instead of increasing it since there’s more money coming in?

Avoiding money mistakes

Avoiding these money mistakes will likely put you on a path towards financial success.  By avoiding the mistakes above, you will be able to free up (at least some of) your income, so that it might be able to get to work for you (you can’t do that when all your money is tied up in payments).  A lot of the principles mentioned here are outlined in Dave Ramsey’s book The Total Money Makeover. This is a book I would highly recommend if you want to get serious about putting these principles into practice.