Are these simple money mistakes keeping you from achieving financial success and true wealth?
April is financial literacy month, so in the spirit of raising awareness, let’s take a look at five of the most common money mistakes. Are you guilty of these bad habits? Is there room for improvement? Change might not be as hard as you think. Financial success begins with taking small steps. Doing one right thing with your money today can make a world of difference to the security of your tomorrow.
5 Bad Money Habits To Change Today
Bad Habit #1: Waiting to save until you are making more money.
Saving money isn’t a function of your paycheck, it’s a lifetime habit. You don’t wait to save until you feel rich; you do it to get rich. Waiting only cheats you out of the money you could be earning due to the magic of compound interest.
Change your mindset to paying yourself first. Start now with whatever amount you can afford, and treat it like you would any other important bill that needs to be paid. Take advantage of any free money offered through your employer and contribute to your 401(k) or IRA. Have an amount deducted from every paycheck and put it on auto-pilot for success. If you never see the money, you’ll soon learn how to live without it.
Bad Habit #2 Putting emergency expenses on the credit card.
This habit is a trap that leads to a vicious cycle of mounting debt. The only people who benefit are the credit card companies who receive billions each year in interest payments.
The solution starts with the establishment of a simple emergency fund. Open a savings account you can easily access – one different from your retirement or long-term savings goals – and start putting away money every month. To fund your emergency account, make only the minimum payments due on your credit cards. Put the rest into your emergency savings account. Continue until you have accumulated one month’s worth of living expenses in your emergency fund, and then tackle that debt.
Bad Habit #3 Saving for your kid’s college expenses before saving for retirement.
Whenever the subject of retirement comes up, I hear the question, “But what about saving for my child’s college education?” This concern leads to confusion and feelings of overwhelm. A lot of people end up so paralyzed, they don’t save anything at all.
The solution starts with the realization that while you can finance a college education, you can’t finance your retirement. We all want to give our kids the best start we possibly can, but the situation is a lot like flying in an airplane during an emergency. You have to put on your own oxygen mask before helping your children. Take care of your retirement first. That will put you in a stronger position to help others.
Bad Habit #4 Keeping the majority of your retirement savings in the bank.
This is a bad habit created by fear. While the FDIC does insure the base amount of your savings, it doesn’t protect against inflation and the rising cost of health care. The average cost of a one-bedroom stay in an assisted living facility unit rose 4.26 percent from 2008 to 2013, while the rate of inflation rose just 1.64 percent over the same time period.* If you are relying on the banks to keep your money safe, then chances are you’re going backward when it comes to your retirement savings.
Cure yourself of this fear by getting some education about investment alternatives. Insurance companies have developed newer products designed to give retirees with both safety and a rate of return that can keep up with the rising cost of health care.
Bad Habit #5 Spending 100 percent of every paycheck.
It has become the norm in our culture to finance a lifestyle we can’t really afford. The banks tell us we qualify for loans and we accept their numbers. This puts us in a position of needing every penny of every paycheck just to pay the bills and keep the lights on.
Adopt a new habit of living below your means. Even though the bank says you qualify, go by your numbers instead. Even though you can afford a new car, buy a used one and put the remaining funds in an emergency savings account instead. It doesn’t matter whether you earn $20,000 a year or $200,000, you will become wealthy if you keep to this simple rule: live on less than you make.
Do you have a question about success with money, your business, or life? You can ask Beau anything by visiting AskBeau.com and sending your question(s) in to RichLife HQ!