Hello friends! If it is your first time to my blog, welcome! If you have been here before, you have probably seen me talking about money before with posts like budget friendly dates, how I’m getting out of debt, and many more! Ever since graduation, I have been trying to focus on getting my financial ish in order and become, ya know, a real adult. Today I wanted to help you also get your financial life together by talking about a few financial mistakes that you are probably making, and how you can turn them around!
Financial Mistake #1 Your Emergency Fund is a Credit Card
Heads up, credit cards are not a very good safety net. I know it seems like a good idea to have a credit card sitting there “just in case,” but in case you have the good habits to back it up, this can be dangerous. For a spender, an empty card is temptation in its purest form. However, that alone is not the true problem here. Many people are capable of having an empty card for emergencies. I am not completely against that idea.
HOWEVER, to be truly prepared for emergencies, you NEED a savings account with real actual money in it. Imagine if every time you used your credit card, you had to go to your parents and ask for a loan. it would be annoying wouldn’t it? A credit card is essentially the same thing. Rather than using your own dang money, you have to borrow it from someone else.
Even if you promise yourself that you will pay it off in full each month, things happen. You car breaks down, and suddenly the balance is too high to pay off. Your girlfriends go on a trip and you don’t have any savings, so you just put it on the card. Stuff like this adds up (trust me I’ve done it). Suddenly you have a $5,000 balance, and even though you are paying $150 a month it is barely making a dent because your interest charge is nearly $90 a month. (This was literally me). I was being charged $90 a month to borrow this money, rather than having used my own dang money.
How to Fix it
Okay, so you’re with me that credit cards are NOT the ideal emergency fund. So how to do you fix it?
Start saving some dang money, that’s how. Whether it’s a sock full of cash or an actual account, start stocking up some dough. Every time you get some extra cash, stick it in your savings. Don’t spend that savings on little things that are not true emergencies. Keep saving hardcore until you feel comfortable, and then continue adding a little bit each month.
Financial Mistake #2 Your Money isn’t Working for You
This was one of the biggest mistakes I made during my college years. Going into college, I had a pretty decent amount in savings thanks to 4-H, graduation gifts, and working each summer. Since I was moving away from my hometown, I moved all of my money out of my small bank savings account and into a chase checking account. It all stayed there until recently.
You know what a checking account doesn’t have? Freaking interest. This whole time I could have had my money earning me money in a savings account with an interest rate. Maybe I’m the only one blind enough to miss this, but I am adding it in here just in case. Why the heck was I letting all that money sit in a checking account where it did NOTHING?
How to Fix it
Just like with Number 1, you need to open a savings account. I highly recommend ally online bank (that’s who I use), but I have also heard good things about capital one 360. It’s helpful having my savings here, because it takes a little while, 2-3 business days, to access it. I can’t just quickly transfer some money to pay for something frivolous.
Both ally and capital one 360 are online banks that have about a 2.2% interest rate. Okay, okay, maybe you are rolling your eyes at me. In an account with $1000, that only earns you a little over a buck a month. Well my friend, that is one more buck than you had last month, for doing NOTHING. You did not have to work for that dollar. You just had to let your money sit in this account. And if that isn’t magical, I don’t know what is. It brings me so much joy to see that little interest payment each month.
Financial Mistake #3 You Don’t Know Where your Money is Going
If you are anything like me (or the me 8 months ago), it is possible you get your paycheck, pay your bills, and kinda cross your fingers and hope there’s enough in there for everything. You know you have enough to get by, but you aren’t really sure where the money really goes, or how much you’re spending on different stuff. Well STOP IT. If you don’t tell your money where you want it to go, you are literally wasting your hard earned cash on things that aren’t actually priorities to you!
How to Fix it
You need a budget. No, really. But the very first step is to TRACK EVERYTHING. I mean everything. Start a memo on your phone or use a notebook to track every single penny that you spend. Write down the day you spent it, and what you spent it on. Then, at the end of the month, divide all your spending into categories. Things like bills, groceries, eating out, shopping, etc. If you have never done this before, you will likely be shocked by how much you spend in certain categories. For example, I was shocked to find out that in one month, we had spent $301.17 on groceries. I had honestly believed up until that point that we spent less than $200 on groceries a month. It’s time to wake up and be real about how you are spending your money.
The next step is to figure out your priorities. What are your dreams? What will you need money for? Now take how much you earn each month, and start to divvy up your paycheck based on those priorities. If traveling is a huge priority for you, but your excuse is that you don’t have the money, see if there is somewhere in your budget that you can cut back on to start saving for travel. Maybe the $10 for some random subscription would be better spent helping you achieve one of your major priorities. If all of your money is spoken for by your basic living expenses, you might need to seek other income streams or find a way to cut back on expenses. It depends on your situation!
If you are seeking more advice in this area, please check out the book “You Need a Budget” by Jesse Mecham. It gives great advice for a beginning budgeter.
Financial Mistake #4 You are Only Making Minimum Payments
Hey friend, don’t feel bad. The world conditions you to think that minimum payments are A-OKAY. The world lied. The literal goal of loan companies and credit card companies is to make you pay as much as possible. The longer you pay, the more interest they get, and the more cha-ching is in their wallet and out of yours. Although it may seem easier to plug your nose, close your eyes, and make that minimum student loan payment every month, I urge to log into your accounts and take a long hard look. If you continue to pay only the minimum, it can take years longer to pay off the account, and cost you thousands in interest.
I did this for a while, I would make the minimum payment on my credit card, and 6 months later expect it to be a much lower balance. Then I would check the balance and it had barely moved. WTF? If you let the credit card companies choose, they will always choose to give you a lower payment so you will keep paying, and paying, and paying. They are sneaky and they want your money.
How to Fix it
The good news is now you are onto their games. You know better than to let these companies trick you any longer. You are on your way. Most people who are into aggressively paying off debt follow the Dave Ramsey method. I personally haven’t read his books, but my personal beliefs and what makes sense to me lines up with a lot of what he says. Some other things not so much. What I 100% agree with is that the best way to be financially secure (and dare I say successful) is to pay off all your debt ASAP. It doesn’t matter how much moolah you have if you are spending most of it paying someone else off.
There are many ways to do this, but I personally am following a method called the debt avalanche. In this method, you pay off the highest interest rate account first. For me, that is my credit card. Once that is paid off, I will take the $150 a month I used to send to that, and start making extra payments on my student loans. My final step will be my car, as it is 0% interest. As you pay more and more off, you have more money available, and each successive debt disappears faster.
Right now I am still working on my first account. I found a few extra dollars in my budget to increase my payments, and any time I get extra cash it goes right into a credit card payment. Let me tell you, it hurt to send my ENTIRE tax return to paying off debt. However, slashing my balance (and interest payment) in half was so rewarding. I know that in the long run, temporary effort will pay off.
Financial Mistake #5 You Don’t Have a Plan for Retirement
Hello, yes, I am 22 years old about to talk to you about retirement. Why? Because after reading a whole lot of financial books, I realize that preparing for retirement is all about playing the long game. The time you start can often have more impact than how much you contribute. If you are in a financial hole trying to dig yourself out, it might make sense to temporarily pause any retirement contributions at your job. Once you are relatively stable, however, I would highly advise adding a little bit to your retirement each month. Especially if your company matches your contributions – not adding something would be wasting free money!
Being transparent, I don’t fully understand retirement funds, and I definitely don’t understand investing YET. But you can bet I am reading as much as I can and learning from those I know who have done these things successfully. I refuse to stay in the dark about my retirement and assume that something will work itself out.
How to fix it
Educate yourself. Talk to your company finance guy and ask about retirement options. If you don’t know what a 401k (or 403b if you are a teacher/non-profit employee like me) is, start by googling that. It can be really overwhelming at first. The first time I looked into a roth IRA I got a headache and closed the computer. Yet, I went back and tried again. I watched videos. From the library, I checked out “The Little Book of Common Sense Investing” and read several personal finance books. I won’t be afraid of money my whole life when I am perfectly capable of taking control.
Right now, while I pay off debt, I am only contributing the required amount to my retirement fund. Once debt is paid off, I will be able to increase my contributions, and hopefully maximize them in the coming years. I want to learn how to invest, and start doing so, because if I have learned one thing, it’s that the market is not about being smart, it’s about being patient.
Once you know what’s going on, you can build a plan that works for you. The time to start is NOW!
Stop Being Afraid of Your Money
Sometimes it seems like money is a taboo subject in our society. If you keep letting your money do whatever it wants, you will never truly be in control. Build a budget, tell your money where to go, and suddenly you are in command. You decide if your priority this month is take out Chinese or building up your new car fund. The most empowering part of a budget is that you realize that you are really in charge of your money, not the other way around. If you can stop making these common financial mistakes, you will already be on the right path!
You got this friend!
*This post is intended for people who are doing okay with money but wish they were on more solid footing. If you are in major financial trouble, I urge you to seek out advice from a professional who can help you much more than I can!*