Money Missteps

A lack of money is a significant cause of stress for the typical American household.

There are many factors that contribute to a lack of financial resources. The most basic cause is outspending your income. No one can spend more than they make indefinitely. Sooner or later, the money runs out. If you, or someone you know is walking a financial tightrope, rest assured that changes can be made to achieve your financial goals.

Watch out for these money missteps:

  1. Neglect to pay yourself first. One cause of being broke is the failure to save consistently. Many make the mistake of paying everyone else first with the intention of saving whatever is left over. There’s never anything left over with this strategy.
  2. No emergency fund. Without an emergency fund, your finances can take a serious tumble. You’ll be forced to use credit cards, dip into your retirement accounts, or skip paying some of your bills in order to pay for the surprise expense. All are serious setbacks to your finances.
  3. Fail to consider the long-term ramification of your choices. People that overspend are often focused on their short-term gratification. Make financial decisions with a long-term focus in mind.
  4. Lack the necessary knowledge. Math, science, and English might be required in high school, but a personal finance class is rarely required. Unless your parents were financially responsible and took the time to share their wisdom, you’re on your own. Educate yourself, consult with your financial professional, and keep learning.
  5. Avoid using a budget. Even millionaires can go broke without a budget. Sit down and create a reasonable budget that allows you to save at least 10% of your net pay.
  6. Spend money on “wants” instead of needs. We’d all like a sports car or a 70” TV, but these may not be the most responsible purchases for most of us. As much as possible, limit your spending to needs rather than wants.
  7. You’re stuck. If you’re in a challenging financial situation, it’s easy to feel hopeless and stuck. Taking action becomes difficult. Getting yourself out of a financial hole can take time, but it’s doable. Get help from an expert if you need to, and create a plan.
  8. Overspend on your housing and transportation. It’s easy to make the mistake of purchasing as much home as your finances will allow. The same goes for that new car. However, it’s important to keep these expenses under control.
  9. Excessive use of credit. Using debt to purchase a home or pay for college can be a reasonable use of debt. Most other uses are toxic to your finances. You ultimately have to pay for an item or service, plus interest, when you use debt to make the purchase. Dealing with debt is like running against the wind. It makes everything harder.
  10. Spend more than you make. This is the core reason for a lack of wealth. You can never run out of money if you spend less than you make. Our society encourages unnecessary expenditures. Have the discipline to spend less that you earn.

Sadly, living paycheck to paycheck is more common than we’d like. The only way to avoid being broke is to save regularly and spend less than you earn. If you are not yet retired, work towards saving at least 10% of your paycheck. Maintain control over your use of credit cards. Keep increasing the amount you save each month and look to the future.