This post is sponsored by Lexington Law. All opinions are 100% our own.
Being an adult can be tough! Getting thrown into the world with little or no financial direction is asking for trouble.
Over the past decade, Brittany and I have made plenty of our own money mistakes. Some of which were fairly harmless and others that cost us thousands of dollars. Most of these money mistakes we had to learn the hard way. Luckily none of these mistakes hurt us too bad financially and we were able to quickly overcome them.
So whether you are struggling with debt, saving money, making money, or simple budgeting here are 10 common money mistakes and how to avoid them.
1) Holding a balance on your credit card
When you talk about the value of money, holding a balance on your credit cards is one of the worst money mistakes you can make.
With interest rates, greater than 25-30% getting out of credit card debt can seem like an impossible task. Paying the minimum on a credit card will keep you in financial struggles for years to come.
It is important to knock out any credit card debt you have as fast as you can.
Advice: If you are not responsible enough to pay off your credit card balance each and every month, then cut your cards in half. Start to use your debit card or cash for your monthly expenses. Listen to Total Money Makeover and start to turn your financial future around.
2) Not understanding your credit score sooner
Your credit score affects your life far more than you might think. Things like: raising the prices on bills, not getting the home you want, getting denied on loans, higher interest rates, affect relationships, and more.
Over the years Brittany and I have learned the importance of a high credit score. After some work we both hold credit scores hovering around 800, which is an excellent score. We achieved this by using the simple FREE app Credit Sesame. It helped us understand what went into our credit score and how to improve them over time.
If you are struggling with your credit score and need help improving it a credit repair company like Lexington Law is a great option. Lexington Law Firm has helped hundreds of thousands of clients take action to repair their credit, since being founded in 1991. Learn how Lexington Law can help you repair your credit score today.
Advice: Sign up for Credit Sesames FREE account and start to track your credit score. Learn the in’s and out’s on what affects your credit score and start to work on improving it month after month.
3) Not starting a side hustle early on
Does an extra $100 a month sound good to you? How about an extra $500 per month? Think about what you could do with that extra money … pay off debt, invest more, buy a car with cash, go on vacation, the options are endless. Every little bit of extra money you can make each month can help towards your financial goals.
Far too often we waste time watching Netflix, surfing Facebook, or even just taking naps (guilty). Our “time bank” is getting lower each and every day. It’s important to use our time effectively so that we can all live life better.
Find something you are passionate about and figure out a way you can make money from it.
Our favorite side hustle ideas:
Advice: Start a side hustle with something you are passionate about. Who knows it might turn into a full-time income where you can quit your job.
4) Waiting to start investing
I have already mentioned it, but time is without a doubt our greatest asset. Waiting to start investing for your future is a huge mistake that is hard to recover from.
Get your money in the market working for you as young as you can. It’s important to understand the significance of compounding interest.
I waited an entire year to start investing in my jobs 401 (k) when I was a Jail Deputy. It was a big mistake not taking advantage of pre-taxed money going into an investment account. Luckily, once I left I was still able to roll over around $15k into a Roth IRA.
Advice: Invest early and invest often! If you are nervous about getting started a robo investor like Betterment with very low fees might be the way to go.
5) Taking “free student loan money”
Let’s start with a money mistake almost all college students run into “free money”. Have you ever heard of the free money that school will pay you via financial aid and student loans?
What I am talking about are the low-interest student loans that financial aid will offer. These oftentimes include an excess amount that can cover food, housing, transportation, etc.
As a young college student taking out extra money is far too easy. It’s almost like you have blinders on and don’t realize in just a few years you will be paying those loans back with interest.
Brittany and I tried to avoid taking out any excess money that was not needed for our college education. At the end of the semester if there was any excess that we did not need it was returned so we were not tempted to use it.
Advice: Only take out what you truly NEED to get through college. Make sure college is the right choice for you and understand the commitment you are making to paying back your student loans.
If you are struggling with paying off the student loans we highly recommend you look into refinancing. Our partners over at SoFi are incredible at finding you the absolute lowest interest rates around.
6) Paying off student loans too fast
Yes, this is an actual thing. If you are a Dave Ramsey fan you might not agree, but paying off your student loans too fast can sometimes hurt you because of opportunity cost.
You should ALWAYS seek the best value for your money. If you are lucky like I was and had a small amount of student loans at a low-interest rate (3-4%) you are better off paying the minimums and investing instead.
I made the mistake of paying off my student loans in a lump sum straight out of college. Around $8,000 at a low 3% interest rate. My money would have been much more valuable to me making 7-8% in the market, especially since I was so young.
I don’t know about you, but I will take an 8% return on my money over a 3% return any day.
Advice: Always weigh out your options and understand what will provide you the best return on your money.
7) Buying a house far too young
Well, this was a money mistake we made and it backfired hard. Brittany and I bought our first house when we were just 22 years old. Six months after college and less than a month after getting married.
I landed a nice paying job at my local sheriff’s department as a Jail Deputy. For six months we lived with our parents to pay down our student loan debt and save for a down payment for our house.
Here is the problem. Buying a house so young traps you to a job you might hate. Well, guess what, I hated being a Jail Deputy. I think most will agree that working in a jail is not the most glamorous job and takes a special group of unique individuals.
Brittany was struggling to find a job as a teacher in the competitive NYS market. I was trapped at a job that was sucking the life out of me. I fell into a deep depression and literally saw no way of getting out. We even contemplated selling our house and moving in with my parents. Things were bad.
Brittany and I continued to pray and finally, after 2 1/2 years of subbing and working as a Teacher Assistant, she got hired as a full-time teacher. With Gods grace, I was able to leave my job as a Jail Deputy only a few months later.
Advice: Don’t purchase a house until you are 100% confident in your job, location, and financial situation.
8) Relying on student loan forgiveness
Although student loan forgiveness can work great for some individuals in most cases it’s a long waiting game to only be disappointed.
For us, we planned on almost half of Brittany’s $30k student loans debt (bachelors & masters degrees) to be forgiven. Unfortunately, there is a bunch of requirements you must meet and the waiting period is 5 years.
It turns out only $5k of the original $30k is eligible to be forgiven. Due to this, we have decided to attack the rest of her student loan debt (~25k) and try to become debt free within a year. Hold us to it!
Advice: Don’t rely on student loan forgiveness. There are a lot of hoops to jump through, you might change jobs, things might change. Nothing is guaranteed.
9) Not budgeting every dollar
So let’s be honest, budgeting can be a pain in the backside. It can be time-consuming, frustrating, and overcomplicated when you first start out. We have found having monthly budgeting meetings helps a TON and highly recommend trying them.
When we first started budgeting in college we never budgeted closely enough to track every single dollar. We would budget our monthly expenses and whatever was left … yay, we have some extra money to save. WRONG WRONG WRONG.
When budgeting it’s important to track down to every single dollar. You also want to make sure you pay yourself first (put money into savings) so you are always hitting your monthly goals.
Advice: Use an app like Mint to track your monthly budget. It’s simple, easy, and effective in tracking down to every dollar and also giving you a bird’s eye view of your entire financial situation with your net worth.
10) Not tracking your net worth
One of the most important financial numbers you can keep track of is your net worth. It is an overall summary of your assets vs. your liabilities. Your goal should always be to improve your net worth over time.
It comes down to a simple equation. Spend less than you earn. Live within your means. If you do this your net worth will naturally improve.
Advice: Although we love Mint for tracking our monthly spending and budgeting Personal Capital is far better at tracking your overall net worth. Take the time to set up these two accounts and you will be well on your way for a much more organized financial life.