10 Financial Mistakes That Will Cost You Big: Making mistakes with your money doesn’t have to be the norm. Many of the financial blunders people make are avoidable, and if you can identify them before they occur, then you’ll be able to steer clear of losing money or creating more work for yourself later on down the line.
10 Financial Mistakes That Will Cost You Big
From not saving enough to not getting the most out of your investment returns, here are 10 financial mistakes that will cost you big time in the long run if you don’t start making changes now.
1) Not starting early
The earlier you start saving, the less painful it will be to adjust your lifestyle down the road. It’s human nature to spend and spend when you can afford it, but starting early is a proven way to compound your money over time. Here’s how: If you invest $1,000 at 5% annually for 20 years—never touching that principal or growing it in any way—your initial $1,000 will become $15,078 (including interest). But if you don’t start investing until age 30, those same 20 years will only add up to a paltry $4,438. Start as soon as possible!
2) Wasting Money on Things You Don’t Need
It’s hard to get ahead if you’re constantly making unnecessary purchases. This can often occur when you don’t have a specific budget, so you find yourself buying things on impulse instead of prioritizing your financial goals. If you want to make more money, it helps to look at every dollar like it costs $1 million—because it does! Make sure that each purchase is in line with your long-term goals and don’t buy anything just because everyone else has one.
As Warren Buffett says, You are neither right nor wrong because other people agree with you. You are right because your data and reasoning are right. Be careful about what you spend money on: Save for big purchases (like a house or car) by setting up an automatic savings plan; use cash instead of credit cards, and avoid retail therapy by having an emergency fund set aside for those unexpected expenses.
3) Narrowing Your Job Search by Salary
Salary is an important consideration in any job hunt, but it can also limit your opportunities. For instance, if you set a salary ceiling of $50,000 per year and you’re competing against multiple candidates for one open position, it’s going to be hard to stand out from the crowd. When you’re looking for jobs online, it’s often difficult to find average salaries in your area.
Glassdoor publishes national salary data that goes back several years so you can get a sense of how salaries have changed over time based on different factors. Use their interactive charts and graphs to determine whether you need to modify your minimum acceptable salary level before starting your search. It’s okay to start lower than your desired salary; just make sure you know what’s reasonable before you begin.
If possible, try to avoid applying for positions that don’t pay enough; instead, consider ways to increase your earning potential at current employers or by networking with other professionals who might have leads on better-paying jobs.
4) Keeping Up With the Joneses
It’s natural to want to keep up with our peers, but you should avoid keeping up with their spending habits—especially if they’re a bad influence. If you live around people who spend recklessly and waste money, chances are you will do so too. In fact, according to a study published in Psychological Science, researchers found that keeping up with wealthy neighbors can lead people to spend more on luxury goods than other members of their socioeconomic class.
It makes sense when you think about it: Why would we want to be like them if they behave poorly? And another study from Columbia University found that students from richer neighborhoods were more likely to cheat and steal than students from poor areas. Why? Because being surrounded by others who act unethically normalizes unethical behavior. So, make sure your friends aren’t bad influences—if they are, distance yourself from them or at least limit your time together.
5) Getting Caught in Debt Traps
It can be tempting to take out a loan to finance things like medical bills, new furniture, or car repairs. After all, it’s better to borrow money at low-interest rates than pay more for goods and services you need. But borrowing money comes with a price—and it’s often one that you have to pay whether or not you’re able to make your payments on time. Credit card debt is nearly impossible to get rid of completely unless you have enough savings in place that you don’t need credit cards anymore.
If you fall behind on student loans, they’ll follow you around for years until they’re paid off. And even if you do manage to pay off your debt, there are still penalties (late fees!) and interest charges that will eat away at your finances over time. In fact, research shows that households with credit card debt tend to earn less income over their lifetimes than those without any debt whatsoever.
If there’s no way around taking out a loan or opening up a line of credit, consider putting some kind of contingency plan in place so that if something happens (you lose your job or have an unexpected expense), then you won’t be stuck making payments when it would be much smarter to cut back on spending instead.
6) Losing Focus When Investing
When you’re investing, it can be easy to get distracted. It seems like every day there’s a new stock that you just have to buy and a new idea for how you can maximize your returns. However, as successful investors know all too well, putting together a solid investment strategy is essential.
Rather than jumping from one idea to another without fully researching each opportunity, invest only in strategies that make sense for your situation—and stick with them long enough to see them through. This will help ensure that you’re maximizing your return without losing focus on making smart decisions along the way.
7) Falling Prey to Insurance Frauds
Life insurance is one of those things you hope you never have to use, but that if and when you do need it, it will be there for you. Unfortunately, not all policies can be trusted. Life insurance fraud costs policyholders billions of dollars each year. Does the most common way fraud happens? An unscrupulous agent or broker tells a person that life insurance isn’t necessary because their age or health status means they don’t need it.
As long as they take out an expensive cash value life insurance policy instead. This sounds like a good deal at first glance, but what many people don’t realize is that these types of policies come with high fees that eat away at your death benefit. This leaves you with less money in your pocket after you die than if you had taken out a simple term life insurance policy in the first place.
8) Failing to Budget Timely Investments
The importance of investing is often overlooked because people fail to make budgets that allow for periodic investments. Without a budget, it’s easy to spend on impulse, and in times of crisis when you need additional funds, there will be nothing left to put towards savings. A significant part of maintaining your financial health comes from proactive saving and investing.
Without it, your retirement will be much more difficult. Start by setting aside a small amount every month and slowly increase that percentage over time as you save more money than you spend. For example, if you earn $2,000 each month and spend $1,900 – with only $100 leftover – set aside at least 10% ($100) in an emergency fund while putting 5% toward retirement.
9) Letting Bad Habits Sneak Back In Without Reflection
It’s far too easy to fall back into old habits once you’ve started making real progress. If you don’t keep a close eye on your financial behavior, you might be surprised to see your net worth actually decreasing even as you continue increasing your income. This can happen if you let certain behaviors like spending or over-leveraging sneak back in without paying attention.
Being financially aware is just as important (if not more) than having a high income. To avoid these mistakes and ensure that you’re moving forward with your finances, it helps to reflect regularly on how you’re managing your money. Take some time each month—or at least each quarter—to look back at what worked and what didn’t so that you can adjust accordingly for next time.
10) Ignoring Other Important Factors
Sure, your top priority may be finding a higher-paying job. But don’t ignore other factors that impact how much you’ll earn. For example, if you find a high-paying position, but it’s far from home, you might have to factor in travel costs and time spent commuting. Also consider benefits and perks like health insurance, tuition reimbursement, and a retirement plan.
If all of these extras are worth less than $20,000 a year — and certainly they are in some cases — then looking for a slightly lower-paying job closer to home might make sense after all. Then again, if your time is limited or flexible hours are important to you then maybe not so much.
Also Read: 8 Investing Tips to Become a Successful Investor
While there are many things we can’t control about our finances, these 10 mistakes can be avoided—and doing so will help you save a significant amount of money. Avoiding debt, tracking your spending, and saving for retirement are some of the most important aspects of your financial plan.
But even if you aren’t well-versed in finances, it’s easy to avoid these common mistakes that can cost you big-time later on. Put them at the top of your checklist so you don’t make any costly miscalculations.