Like most people, you’re probably up to your eyeballs in debt.
Whether it’s credit card, housing or student loans, we as a nation have a problem. According to Nerd Wallet, Americans on the average are over $130,000 in debt.
So how did we get here?
The answer can probably be found in our actions and behaviors towards money. Too many of us are living paycheck to paycheck and spend most of our lives working to pay off our bills.
In order to fix our debt issue, let’s identify the money mistakes we make that get us in trouble.
Money Mistakes We Make That Keep Us In Debt
Not Saving Enough.
How many of us are guilty of not saving enough money to cover us in the case of an emergency? I’m sure more than we would care to admit. I learned from Dave Ramsey to first save $1000 and then 3-5 months living expenses.
Doing that was pretty difficult for me at first, but I found that catastrophe always strikes when you’re not prepared.
Not having any money in your savings can put you in a precarious situation and is the main reason people end up being one paycheck away from homelessness.
So, if you want to protect yourself, start saving today. If you have a difficult time with saving money, start putting away a percentage of your paycheck and swear not to touch it.
It’s what they mean when they say pay yourself first.
As long as utilities are not at risk of being disconnected, put money in your savings before you do anything else.
Participating in your company’s 401K or have money automatically debited from your account and placed into savings will make it easier to save. Out of sight, out of mind.
Not Checking Your Credit Report
When was the last time you checked your credit report? Now if you’re like a lot of us, you probably have no clue of what is on your credit report.
A lower credit score can affect how much you pay in interest for a loan or if you’re approved at all, so it’s knowing that number is a pretty big deal.
If you’re someone who never checks your credit, you may be surprised when you’re denied for a mortgage or a car.
Even if you pay all of your bills on time and have zero balances on all of your credit accounts, you’re not to immune to mistakes being reported.
You don’t want to find out if there is any inaccurate information on your credit report or worse, you’re the victim of identity theft.
Obtaining your credit report is painless and you can request a free one from each credit reporting agency once a year. This will give you time to review inaccuracies and have the removed from your credit report.
Though they have 30 days to review your request there are times when you must provide documentation for them to erase the information. Even small dings to your credit can increase the amount of interest you pay.
Having Too Many Overdraft Fees
I once had a checking account where I didn’t put much money in and only used it to pay for a couple of items, such as my monthly gym fee.
Well, one month, I forgot about the annual fee (I never received a reminder) from my gym and it hit my account before I could put money into it. Needless to say, my bank paid for it, but they also charged me an overdraft fee.
By the time I was able to figure out what was going on, my account was already overdrawn over $100!!! Other items that came through my account were sent back and I was charged a $39 return item fee PER ITEM.
Now I try not to have auto debits come out of my checking account and use mostly prepaid debit cards. (This one has taken the place of my traditional checking account). That way if someone attempts to charge my account and there’s no money in there to cover it, the transaction is declined. I’m not charged overdraft fees and I still have time to add money to my account.
Most merchants will try several times to debit your account, so be mindful of that when you give out your checking account number.
Purchasing a Car You Can’t Afford
Don’t become envious of your friend who has that brand new Lexus, because often times than not, they’re drowning in car debt. When you purchase a new car, you’re not only paying for interest to finance that car, but also the insurance required to cover the car.
Add on top of this, title, registration, maintenance fees, and gas – the cost of the car goes sky high.
Now, I’m not saying you shouldn’t buy a new car. I’m just saying don’t buy a new car you can’t afford. This includes leasing a car – just don’t do it. Most people are living paycheck to paycheck because they are spending a lot of money on items they don’t need.
If you find yourself peeking out the window every night for the repo man, that may be some indication you can’t afford that car.
If you need a car, look for a reliable used one. Many used car dealerships offer certified pre-owned vehicles and there’s always CarFax.
Better yet, save up enough money to purchase a car with cash and as your needs and funds grow, use that money to upgrade later on.
Living in a Home that is Too “Big” for You
When I purchased my first home, my mortgage was over $1700!!! That’s a lot for a single mom living off of a teacher’s salary. I had two mortgages (crazy, huh) and only one of them was fixed.
Thankfully the interest rate went down and so did my mortgage payment, but who knows how long I would have lasted paying that amount each month.
We often find ourselves wanting to live in the best of neighborhoods, but along with that security and nice schools, comes a huge price tag. If you find yourself paying more than 35-40% of your salary on housing, then it’s time for you to move.
There’s nothing wrong with moving to a smaller home in your neighborhood or moving to an area with a lower cost of living. You’ll have more peace of mind as well as money to use for more important things.
Also, consider if renting is more cost-effective than buying. I know most people will tell you it’s better to become a homeowner than a renter, but depending on the current housing market, your lifestyle and financial situation, it may be better to wait a year or two before buying.
The heart is where the home is and it doesn’t matter if you live in a 3,000 square foot home or a 1,200 one.
Trying to Keep up with the Joneses
Why do we spend money on things we don’t need to try to impress people we don’t even like? Do you find yourself looking for a new car when you see that your neighbor just bought one?
I don’t believe in trying to keep up with the Joneses because they’re probably just as broke as I am. The only difference is that they are trying to appear rich, which will put you in the poor house real fast.
Years ago, I would go shopping spending money on a whole bunch of nothing just because I was bored. I also liked the attention I received when I wore something new and pretty to work.
Once I realized how empty I felt after my shopping binges and how detrimental it was for me to shop aimlessly like that, I stopped.
Yes, I wanted those new leather boots, but did I need them?
Consider what you value most in life. I enjoy spending time with my family and friends more than I ever could with a new Apple TV. Yes, it is nice to have nice things, but you shouldn’t go broke trying to obtain them either.
If you live by the motto, “shop ’til you drop’, then you may want to seek a therapist. It’s possible you have some unresolved issues that need to be dealt with before tackling.
How many of the mistakes on the list are you guilty of doing?