Are You Making Any of These Three Money Mistakes?

by Tracy · 3 comments

Are you having a hard time reaching your financial goals? It might be because you are making one of these five very common money mistakes.

1. Forgetting to account for predictable irregular expenses when making a budget.

A lot of the “unexpected expenses” that derail our budgets aren’t really all that unexpected when you think about them. While you can use your emergency fund to cover the costs, are things like annual vehicle registration fees and HVAC tune-ups really emergencies that just happened out of the blue?

In an ideal world, you’ll plan ahead for these kinds of expenses and put aside a bit of money each paycheck into a designated savings account to cover the costs. That way you won’t have to deplete your emergency fund or go into debt to pay for easily anticipated fees, repairs and taxes.

To determine how much to put aside each month, think about the kinds of expenses that you typically have in a year. You should include costs that you know you will incur, such as quarterly insurance payments and scheduled maintenance on vehicles and your home and costs that are likely to occur sooner or later such as repairs and medical bills.

Add the costs together and divide by the number of paychecks you get in a year to see how much you should put aside. For expenses that aren’t guaranteed to come up like medical bills, use what you’ve spent in the past to help you estimate how much you’ll need. Even if you can’t do the full amount, even saving half or a quarter will help get you in a better place financially.

Funds that aren’t used can be rolled over to the next year until you have a large enough surplus to “trim” off the excess to use for more lucrative investments.

2. Focusing on just the little things because the big things seem to hard to change.

Sometimes, all it takes to get into a better financial place is trimming a little fat from the budget. You can save a nice sum by doing things like packing a lunch, cutting cable and looking for a better cell phone plan. Every penny does add up when it comes to savings!

However, if the cause of your financial distress is a mortgage, car loan or student loan repayments that you can’t afford, it’s unlikely that you’ll be able to achieve long-term financial stability until you are able to find a real solution for those debts.

That might mean exploring drastic options like bankruptcy, foreclosure and repossession. It might mean that neither spouse gets to stay at home with the children or taking a second job. Or it could mean having the determination to research every option and knock on every door until you find a program that can help you.

Do everything in your power to make your financial situation better, but don’t distract yourself by trying to bail yourself out in a teacup instead of looking for a lifeboat.

3. Being too arrogant

Anyone who spends any time reading financial blogs and forums has run into *that* guy or gal who thinks they not only know it all, but that there is absolutely no way, no how that they could ever be fooled or think irrationally.

The truth is, even though we’re probably not nearly as obnoxious about it, almost all of us are prone to over-estimating our own abilities and under-estimating everyone else’s. This is just human nature and doesn’t make anyone a bad person (except maybe *that* guy!) but it does mean that we have to work hard and make a conscious effort to overcome our own biases and see things objectively.

It’s easy to point fingers and say “That’s so stupid! How could they not realize that?” when hearing about other people’s financial mistakes. At the same time, when it comes to our own, we’re much more likely to blame outside forces and recount the unique circumstances that led to us getting into a sticky spot.

This isn’t to say that you have to drag your self esteem into the gutter to make good decisions. The idea is that we, as humans, are all prone to the same kinds of errors in thinking and judgment. Being humble enough to accept this makes it more likely that we will ask questions and think twice before making decisions.

Have you made any of these money mistakes? How did you get on the right track towards financial stability?

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  • kathleen says:

    In my mid-20s, I started getting invited to a lot of weddings, many of which required travel (plane tickets and hotels). So, I started a wedding/vacation savings account. I have an automatic transfer putting in a little bit every other week. It’s been such a relief to tap into that fund for fun things; I actually view the event as a fun and just not a drain on my wallet!

  • Ginger says:

    I really think everyone should, at least once, make an annual budget. That has helped us not forget the irregular expenses and we have a ton of them. If you count our irregular expenses, they count for 40% of our annual expenses. If we did not account for them we would be in major financial trouble. Having certain expenses as irregular, like car/life/house insurance and property taxes etc, has allowed for some extra flexibility in our budget but we do have to be careful not to over spend.

  • KM says:

    I like the last point. One of the most important changes I’ve made in my life (which takes upkeep, so I work on it constantly) is to stop making excuses. Although I would like to say that I am good about finances and this doesn’t apply, it applied a lot to time when I was in college. I had to force myself to take accountability for the fact that I procrastinated on homework instead of using the excuse that I took too many classes and had to work at the same time. Thankfully I haven’t had to do that for financial purposes, but I can see how it’s possible, and it’s also quite easy to prevent.

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