More Money Mistakes
There are a lot of money mistakes people make because there are so many areas to personal finance and because so many people are not educated in personal finance. I realized that last week’s list of 5 money mistakes people make was too short; there are a few other things that should have made it on that list. Here 6 more money mistakes that you need to avoid:
#6 Saving Money For Your Kid’s Education
I realize that we might be starting off with some controversial advice but hear me out. Before you click out of this page because I offended your parenting outlook, you need to know I too am a parent. Two of my boys will be college bound in less than two years.
I’m not saying that you shouldn’t be saving for your kids’ college but I am saying that you shouldn’t put that ahead of your own financial needs. If you don’t have an emergency fund and aren’t saving for retirement that should be your priority. Parents want to give their kids everything they didn’t have but that can lead to unappreciative kids. Let them have to work for that scholarship, it builds character! And who is to say that your kids are even going to go to college, not everyone is college material.
Let me take it a step further. You fund your kids through college at the expense of saving for retirement. Who is going to take care of you at 65? Are you 100% sure that your kids will return the favor?
We would like to think that we raising kids that will take care of us when we get older but who knows what financial position they will be in or if they will even turn out to be the type of kids that honor their mother and father like the bible says. I know parents that have taken out the little bit of retirement money they had to help their kids out only to have their kids be worse off.
It’s like when you are on an airplane. They tell you to put your safety gear on first in case of an emergency. That’s because you can’t be much help to anyone else if you haven’t taken care of yourself first. It’s ok to put your financial needs first before saving for your kid’s education.
#5 Not Teaching Your Kids About Finances
I’m sure you have all heard of the Chinese proverb: “Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.” This proverb hits home the point I am trying to make.
You want to teach your kids how to make their own money, not just be a wallet for them. Help them learn the value of money by having them work for it. Most parents want their kids to have a better life than what they had, to be hitting that next financial level; that’s our desire anyway. That Emanuel, Gabriel and Julian won’t have to struggle with some of the things we had to.
And one of the things that most people struggle with is finances. That might be because they were never taught and are not good with finances. Sure the schools are teaching good basic financial skills but nothing that can really help students excel in their financial life. It’s not going to help them establish a strong understanding of how to handle money. Parents are the ones primarily responsible for teaching kids about finances. Let’s break this cycle of financial
#4 Not Learning About Finances
Which leads me to financial mistake #4 to avoid, not learning about finances. If you didn’t get taught finances at home, don’t repeat the cycle with your kids and just because you didn’t get taught it growing up is not an excuse. There are plenty of free resources, YouTube channels and websites like mine that teach you financial education You can google or YouTube anything, and I mean anything and everything on financial education.
Before I started educating myself, I thought finances was this complicated, out of this world thing that I would never understand. But you know what, the more I started to read articles and books and watching different videos on personal finance, the more things started to make sense. I started to see how all aspects of financial education fit together and I realized that this wasn’t as hard as my mind had made it to be.
Yes, there are a lot of areas to financial education but just take 10 minutes every day to watch or read something related to finances, that’s only 5 hours a month. Youtube things like “Importance of managing your finances”, “How to create a budget”, “What is bitcoin” or anything that you feel you don’t know too much about.
Better yet, I have made it easy for you, just keep head over to my Youtube channel where I have created a playlist, Financial Basics to get you started. You have no excuses! There are too many resources for you not to get smart on finances and then turn around and teach your children.
#3 Not Having More Than One Source of Income
A lot of people were laid off because of COVID and that job was their only source of income. Only having one source of income is putting all your eggs in one basket; we know that’s not wise. And we saw last year how quickly everything can collapse. In just 4 months after COVID hit the US., 44 million people filed for unemployment. To put that into perspective, there were 155 million people employed in the US in 2018. That means that a little over one fourth of the working population was left without a job. One fourth!
My husband and I are trying to get to the point where we don’t depend on anyone to take care of us. Our goal for 2021 is to establish at least 2 more sources of income this year. In the personal finance world, it is recommended that you have 7 sources of income. If one of the streams of incomes stop, you have six more to fall back on while you look for another one.
I don’t want to depend on the government with their failing social security system to take care of me. I don’t want to have to depend on one job to meet all my financial needs. And 2020 showed us that it’s wise to have more than one source of income.
So figure out how you can add another source of income, there are so many ways. Consider renting out that extra room in your house that is only holding junk, being an Uber driver in your free time, starting your own business, buying a rental property, being a virtual assistant or getting a part time job. There are a lot of jobs that you can do on your computer in your sweats. The opportunities are out there you just have to look for them and be willing to sacrifice some free time.
#2 Making Only the Minimum Payments on Your Credit Cards
This will crush your finances! I commend you for at least making the minimum payment because you are avoiding the late fees but only making the minimum payment is a 100% sure way to get into even more debt. On the one hand you are avoiding a negative impact on your payment history which accounts for 35% of your credit score but on the other hand, you are increasing your credit utilization ratio which accounts for 30% of your credit score. If you are only making the minimum payment, you are not even covering the interest for the month that will be added to your card.
Let’s say you owe $8,000 on a credit card with an annual percentage rate (APR) of 21%, and the monthly minimum payment is $80. We can calculate your monthly interest rate by dividing 21, your APR by 12 since there are 12 months in the year. That means you have a 1.75% monthly interest rate. 1.75% X 8,000=140. That means that you send in your $80 minimum payment for the month and the credit card charges $140 in interest for the month. You see how that math doesn’t add up there.
If you haven’t noticed, there is a minimum payment warning box on every one of your credit card statements. It shows you how long it will take you to pay off that credit card if you only send in the minimum payment and how much you will pay in interest; it will shock you. It will also calculate that same information if you sent in a bigger monthly payment. So if you are only making the minimum payments and can afford to pay more, take a look at one of your credit card statements and compare how much you would save in interest and time if you sent in more money.
#1 Not Saving For Retirement
I already touched briefly on this when I was talking about saving for your kid’s education. The number one mistake to avoid in today’s list is not saving for retirement. Start young and see that money start to add up. The government encourage us to save for retirement, by providing tax incentives, probably because of the state of social security.
If you contribute to a 401K, you can actually lower the amount of income you have to pay taxes on, which can positively affect your take-home pay. Not only that but if you work for an employer that will match your 401K contribution, you are leaving free money out there.
I haven’t met anyone that has told me they want to keep working until the very end. We all want to be able to enjoy our more seasoned years with no worries and with little to no responsibility. You have earned it after working for forty plus years. But if you are expecting that social security check to be enough, I hate to be the one to break it to you, but your retirement might not be what you are expecting. Start saving for retirement ASAP by investing your money into a place that averages at least a 7% interest rate so that your money can make you money.
This completes my second list of financial mistakes to avoid. What are some financial mistakes that you would add to this list? One of my subscribers, Kelsey shared: not being so quick to lend money to family and friends. She almost lost a friendship when a friend dragged his feet to pay her back. If she had to do it over again, she would have made it more official, by putting it in writing and including a payment plan and even getting it notarized. Yep, been there before so I completely agree with her! Let’s be in the group of people that learn from other people’s mistakes!
To Your Finances,