Money mistakes to avoid in your life and some common problems. If you are in your 20’s or 30’s you really need to learn these mistakes to avoid getting yourself into a big debt. So that you won’t repeat the same mistakes I did during my teenage.
In short, there are 2 types of people; those who increase their wealth and those who lose it. In this article, I will teach you 10 money mistakes you must avoid in your 30s or 20s.
The truth is that keeping money is a lot harder than making it. It’s not uncommon to see people who come into wealth through inheritance, lottery or other windfalls and lose it in a short amount of time.
A good example of someone who earns a ridiculous amount of money but lost it all is the famous boxer, Mike Tyson. Despite earning over $300 million in his career in 2003 he declared bankruptcy and was reported to be in more than $20 million worth of debt. Needless to say, money mistakes happen and these bad money decisions can cripple your finances no matter how much money you make.
So it always good advice to learn from others who have previous experience when it comes to money management. For the money, we all have lost a huge sum before but often is due to negligence. Knowing these guides will help you to spot out any bad money decisions that may be in your always. And by the time we are done, you will also understand what is meant by poor money management?
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So let’s get into the 10 money or financial mistakes you must avoid at all cost.
1. Spending on drugs
Spending on drugs may be fun and seem harmless at the moment. But the truth is that constant use can have negative effects on both your health and your wallet. If you calculate how much drug and cigarette users spend in a week or a year. You’ll see that many of them are harm stringing their ability to reach financial freedom.
For example a pack of cigarettes cost $9.8 and many cigarettes smokers smoke a pack a day. This amounts to $68.6 a week or $3, 35.12 a year. The same amount of money could cover the property taxes on your home or a 2 week vacation. But sadly many drug and cigarette users fall into this habit through curiosity and peer pressure.
The end result of this habit is a hefty toll on both your health and your wealth in the long term. Try to avoid spending on these items as best as you can.
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How to avoid spending on drugs
A habit when already formed is very hard to stop. When you are addicted to a specific drug; you just can’t wake up one day and say you will never take that drug again. If care is not taken that very day that you may say that; that will be the day you will take much.
A college friend of mine who was addicted to smoking once told me. Justice, I have been trying to stop smoking but I can’t, I have wasted my entire money buying cigarette. Is there any way you can help me? He continued; I normally smoke 1 pack of cigarettes a day. But the day that I will say to myself that I will not smoke; Justice, hat is the day I will find myself smoking 2 packs and above. (Aw you better avoid these money mistakes in your life)
His problem was very hard to solve because almost all his family members were smokers. And he still lives with them. So tell me, will it be possible for him to stop without departing from her family? Of course no. In life you are likely to be just the same with those people you spend your time with. So if you spend most of your time with someone who wastes money unnecessary. You will also end up spending on unnecessary things.
So the only remedy here is. Analyze your situation and if you find out that you got into drugs by influence from others. The best option is to stop associating with them for a while. Am not saying you should forget about them or not to talk with them anymore, no that is not what I mean. The point is, you need to stop taking drugs, because if you don’t then don’t tell me you won’t be wasting money on such drugs.
It very hard not to be seen in a group of best friends anymore but remember it is the only option you have if you really want to stop spending on drugs and manage your money well.
OK now it time for the top money mistake to avoid, which is…
2. Spending more than you make
This can be tempting to do especially as a young adult. It can be tempting to blow your money right out of college when you are making a consistent income for the first time in your life.
Buying that new car, moving into a new house and flying first class. They’re all appealing things to do but the problem with them is that you tend to end up living paycheck-to-paycheck. If your income can’t cover these costs this issue can be like lifestyle inflation whereby an increase in earning will cause you to increase your living expenses. An increase in paycheck shouldn’t warn you to increase your cost of living.
The majority of people feel that they should reward themselves once they get paid. Instead this cash inflow should be directed into prolonging your wealth through investments and the acquiring of assets. Probably the biggest reason that people spend beyond their means is to impress others. They spend because their self-esteem is low and without these material goods they feel inadequate in comparison to others.
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But this is flawed thinking as Dave Ramsey says ”we buy things we don’t need with money we don’t have to impress people we don’t like” Many of us are guilty of this, once you learn to delay gratification and forget about impressing people, you will then be able to grow financially. Social media is another cause of overspending; people try to spend huge sums of money trying to look rich without actually being rich.
An internet entrepreneur said, he would never make a big business and buy an expensive car with it. When he makes his first big sale, in order to prove his critics wrong again falling into the trap of trying to impress others. This means of impressing others is a never-ending staircase.
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How to avoid spending more than you make
At all points of life there will be others to compete with or to show off. You have no business buying a gadget worth $900,000 when your monthly salary is just $3,000. Be smart create a budget and track your spending to ensure you avoid spending more than you make. Impressing others with your paycheck is a trap to lead you to poverty.
The next money mistake to avoid is…
3. Not investing wisely
Investments can be really tricky. Many people put their money into things based on tips from friends or a strong conviction that, the prices of popular stocks will keep going up. One type of asset to just about everyone seems keen on these days is real estate. Many people think that once they own an investment property they’ll be financially set.
They think that every month rent payments will just start rolling in and their income will exponentially increase. Unfortunately this is not always the case; sometimes tenants missed payments, appliances break or the value of your property declines. Like all types of investments there is risk involved.
For the wise investor, the key to making their assets produce a reliable stream of income is to obtain the proper knowledge about a particular market or product before putting their hard-earned money into this adventure.
How to invest wisely with your money
In short make sure to do proper background work on whatever it is you want to get into and not just because your friends are making money from it or a sales agent told you about the great benefits it has to offer.
Investment is a great way of building a high yielding passive income. But sometimes it can be risky; if care is not taken it can lead to loss of huge money. So always research and make sure you have much experience in the field before you get yourself into. I have lost almost $3 million in investment from my childhood so learn this from me I know how it hurts like.
Among all these money mistakes to avoid; below is what I wasted much of my money on.
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4. Following get-rich-quick schemes (biggest money mistakes)
Get rich quick schemes are one of the surest ways of losing your money. As the saying goes “quick money brings quick problems” following a money scheme is bound to get you in trouble. Get rich quick schemes include things like Ponzi schemes, pyramid schemes, and make money overnight offers. Their all set up to make the scheme originator rich by taking your hard-earned money.
If you are looking into new business ventures and see opportunities that promise high returns with small risk. Then tread with caution think of it like this, if it takes 20 years in a career to make $200,000 and a new venture is saying that you can make that amount of money in a year benefit. Legitimately wouldn’t everyone be doing it?
How to avoid following get-rich-quick schemes
In short, when it comes to making money fast, always employ your best judgment before signing on the dotted line. Gambling is the main factor of this. During my teen, I and my friends will run into the casino and waste almost $30 each day per person. What did I benefitted from it? Nothing but a lesson and that is what I am impacting it to you. Avoid following get-rich-quick schemes they don’t have anything better for you. The game is always set to be in the owner’s favor.
Now moving to the most important money mistake you must avoid.
Am sure you will love it, which is…
5. Not having an emergency fund
Let’s face it, life doesn’t always go your way and sometimes you need cash in order to rectify the situation you may encounter. For instance, your car could suddenly stop working, you could lose your job or your washer could break. Unfortunately, just about everything in life costs money which is why not having an emergency fund set aside is a critical money mistake.
Sadly a 2019 Federal Reserve study found that almost 40% of American adults wouldn’t be able to cover $400 emergency with cash savings or a credit card charge that they could pay off quickly. About 27% of those surveyed would need to borrow the money or sell something to come up with the $400 and an additional 12% wouldn’t be able to cover it at all.
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How to start saving for an emergency fund
Luckily you don’t have to be one of these people. Saving these funds can be easy; all you have to do is set up a 10% automatic deduction from your pay with your employer. That will send a portion of your paycheck into an emergency savings account.
But how do you know when you’ve saved enough? Most financial gurus recommend you accumulate 6 months’ worth of living expenses, but if you want to be extra cautious then 1 years’ wealth is a great gold.
6. Having just one source of income
For most people, having a single source of income is a way of life and this income usually comes in the form of a salary. Unfortunately, jobs aren’t as secure as people perceive them to be. In fact, in 2018 alone US businesses laid off more than 21 million people. Meaning that if your job was the only way you made money then all of a sudden your cash inflow ceased.
When it comes to income sources you need to think of yourself as a tree. Do trees grow fruit only from one branch? The simple answer is no, they have different branches producing flowers and fruits and so should you. You should keep developing and learning new ways to let your income work for you. This is an important money trick and is not only considered to be wise but a safe way to help you sleep at night whiles your money works for you.
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How acquire multiple source of income
Does your current job allow you to get some extra hours you can utilize for money? Then why not look for part-time job. With part-time job you can work 2 or 3 hours after your main job. Just be careful not to over stress yourself much.
You can also look for online jobs. You can do freelancing if you have any of these skills: writing, graphic designing, video editing, web designing, software engineering and many more. Just look for what you have interest about and you can start working form up work and freelancer
We are actually getting to the end of these money mistakes to avoid in your 20s or 30s.
But one big thing money mistake I want to show you is…
7. Relying heavily on credit cards (part of common money problems)
For many people, credit cards can be a convenient tool for making purchases. For others, they can be a one-way ticket to dead. Although you need credit cards for some business applications. Relying on them heavily can ruin you financially.
The use of credit cards promotes impulse buying. It gives you the mentality that you can afford anything with an easy swipe.
In fact a 2001 MIT study found that shoppers spent up to a 100% more when using their credit card to pay instead of cash. So if you find yourself uncontrollably spending on credit, form the habit of paying with cash instead. When you pay by cash you are physically handing over money and seeing the depletion in your wallet. You will feel the financial impact of the purchase much more than when you pay on credit.
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How to avoid relying heavily on credit cards
In short whenever you want to go on shopping try to pay with physical cash most of the time than credit card.
The next money mistake to avoid is…
8. Being scared to take financial risks (Top money mistakes to avoid)
As the saying goes “no risk no reward” and in order to make money, you need to take risks. However, the risks you take need to be calculated. For instance, putting your money in an index fund is a higher risk than leaving your money in a savings account.
But your money will never grow making the typical point 0.9% interest at a savings account yields. Instead investing in an index fund for example, will mirrors the movements of the whole stock market. Historically provided a returns of 7% annually which is a calculated risk that in my opinion is worth taking.
How to avoid the fear of taking risk
Here you need to be careful. Not because you hear me saying you should take risk so you should run into the casino and sprinkle your money over. No care must be taken. I will always advice you to take risk with your spare money. If you want to involve yourself in risk taking, please don’t use those monies you have set for a particular purpose. Risk taking is a win or lose game.
Below is the money mistake I never got to know of early. I actually learned this from Michele at making sense of cent thanks to you Michele for letting me know of this.
moving to the next money mistakes to avoid…
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9. Saving rather than investing
When you keep money in the bank it loses value over time due to inflation. However, when money is invested wisely it grows, simple. In mistake number 8, I mentioned that being scared to take financial risks is a mistake. The people who are scared to take risks are people who will save all their money and leave it to road overtime.
The only money you should be leaving in a savings account is money for your living expenses and your cash emergency fund. In short, you have to save to invest and not save for the sake of saving money. Saving without any actual plan will end up being spent on things that are not worth it.
How to invest your money rather than saving
For instance when you leave money in your bank account, you will become tempted to spend it on material goods like a new car, new clothes or entertainment. Instead you should be getting that money to work for you, by investing it whether in form of stocks, real estate or startups.
All these avenues offer a way to make new streams of income which is much more financially lucrative than letting your money devalue when sitting in the bank.
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The last money mistake to stop is…
10. Having only one bank account
Having only one bank account is risky for a few reasons. First having one bank account will make the management of your money really difficult. By working with just one bank account you have to keep all of your emergency bill and college savings in one spot. If you splurge in Spanish cash; you may risk not having emergency cash or tuition money readily available when you need it.
This is why you should have at least three bank accounts. One should be used for emergency funds in case anything goes wrong another account can be for your day-to-day bills and a final account which I call a play account. Your play account is what money you allocate for entertainment or vacation.
If you want to take things one step further you should set up an untouchable account. This account can be used as a savings account that paycheck deductions are directed to every single month so you can automate your savings process and ensure your wealth grows over time.
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Final thought on money mistakes to avoid in your 20s and some common problems
So that brings us to the end of this article but one thing I want to tell you is to be a man of action. Don’t let your learning’s to be knowledge but let it be activated. When you learn and you don’t implement then you shouldn’t have wasted your time either. So master these money mistakes to avoid fast.
The main reason why I wrote this article is because of one question I got from you guys “how do you avoid financial mistakes”
So I hope the above money mistakes sum everything up. I challenge you to comment below on any bad money decisions you have made.
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In the coming articles i will talk about…
What are some problems caused by money?
How do you avoid financial mistakes?