Money mistakes. Even the most financially disciplined people make them from time to time. Like everything in life, these missteps present a learning opportunity. I continue my Financial Literacy Month series with a look at money mistakes you don’t want to make. I’ve also got some tips to help you avoid them.
Today’s post looks at the basics of day-to-day money management, spending and debt. See Money mistakes you don’t want to make – Part 2 for tips on saving, investing and planning.
This post was originally published in November 2020 and updated in September 2023.
Disclaimer: I’m not a financial advisor. Everyone’s situation is different. If you need help with your money, find a qualified financial advisor.
Day-to-day money management
Developing good money habits starts with simple things you do every day, often without realizing it. If you want to make changes, this is a great place to start.
Not knowing where your money goes
You can’t get a handle on your money if you don’t know what you’re spending it on. See 5 ways a budget can help you to learn why this is critical and how to get started.
If you don’t have a good sense of where your money is going, start tracking your spending. It’s the first step in creating a budget and getting your money working for you.
Paying too much in fees
Whether it’s bank transaction fees or investment fees, high fees add up and eat away at your money over time.
The first step is to know how much you’re paying in fees. Look at your bank statement. Read the fine print on your investment accounts. You might be surprised by what you see.
Then, look for ways to save money on fees. Find a no-fee bank account or one with a monthly cap on how much you pay. Look for investment accounts with lower fees. If you save in your company retirement plan, you’ll probably pay less than what you’d pay on your own.
Missing bill payments
Life is hectic so it’s easy to forget to pay a bill now and again. This can lead to extra dollars in late fees and interest payments.
This is where organizing your money comes in. Find a system to manage your bills. Put your recurring bills on your calendar and set a reminder. Use an app or software to keep track. Or automate your payments so you don’t need to remember.
Not taking the time to learn
Learning is one of the best investments you can make in your future.
Increasing your knowledge can boost your confidence and set you on the path to success. Start by checking out some of the websites and resources I suggested in 5 ways to take control of your money. And, if your employer offers financial education programs, take advantage of them!
Spending
Unplanned or uncontrolled spending is one of the easiest ways to get yourself into money trouble.
Spending more than you earn
Living within your means is a fundamental rule of money management. Common sense dictates that spending more than you earn is a bad idea. But the credit card bills keep getting bigger and, before you know it, things spiral out of control.
Do you have a budget yet? What are you waiting for? It’s the best way to get a grip on your financial picture.
Impulsive spending
Buying things you didn’t play to buy can be a budget killer. A 2022 study from Slickdeals showed the average American spends $314 a month on impulse buys. That’s a lot of money you could use for other financial goals.
Avoid this by being more mindful and intentional about your shopping habits. Check out Mindful shopping tips to save you money for some ways to avoid impulsive spending.
Chasing the latest trends
Another spending habit that can derail your budget is chasing the latest trends. Whether your weakness is fast fashion or the latest tech gadget, before buying ask yourself if you really need it.
This is a good application for the 5 Whys technique. Ask yourself why you need something, then keep asking yourself why. This can help you differentiate wants versus needs.
Keeping up with the Joneses
FOMO (fear of missing out) is a big factor in driving spending, and it’s magnified by what we see on social media.
No matter how much you have, there will always be someone who has more. Keeping up with the Joneses, or the Kardashians, is a no-win proposition.
Define your goals and what you want, and don’t be sidetracked by what you see from others. It’s your money!
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Credit and debt
Debt is a fact of life for most people with Canadians owing $1.83 for every dollar of disposable income. (Source: BNN Bloomberg) Let’s look at some debt-related mistakes to avoid.
Buying more house than you need
With the price of houses increasing all the time, people are crippled by huge mortgages that they may never pay off.
Over the years, houses have grown bigger while families have gotten smaller. What do we do with all that space?
Whether you’re buying your first home or your fifth, think about what’s important to you. Consider how you live and what you really need. Would you rather pay a big mortgage or have money for other things?
Not paying credit card balance in full every month
Credit cards are a huge convenience, but they come at a cost. Running a balance on your credit card means you’ll pay for that purchase multiple times thanks to high interest rates.
If you have a hard time resisting temptation to spend, leave your credit cards at home and use your debit card instead.
If you’re carrying a balance on your credit card, make a plan to pay it off as quickly as possible. It’s one of the worst kinds of debt.
Payday loans
Avoid payday loans at all costs. In my opinion, payday loan companies are simply loan sharks operating under a veil of legitimacy.
These companies will tempt you by advertising what appears to be a reasonable interest rate. Don’t be fooled. This is the most expensive way to borrow money with real annual interest rates as high as 400%.
To learn more about why payday loans are a bad idea, check out this article from the Financial Consumer Agency of Canada.
Don’t be too hard on yourself
If you’ve made some of these money mistakes, don’t worry. It’s never too late. Decide to start making small changes today to build a better future. You can do it!
See Money mistakes you don’t want to make – Part 2 a look at mistakes related to saving, investing and planning.
Are there any things related to money management, spending and debt that you’d add to this list? Tell us about them below.
This is a great list Michelle! Fortunately I think I’m doing pretty well when looking at this list. I definitely see a lot of people buying way too much house and I really don’t get it! So expensive, PLUS, now you’ve got to clean all that… Forever! 😬 No thanks! I’d take a tiny house any day.
Thanks Clarissa! I agree. My family lives in the house my husband and I bought when we got married 27 years ago. We’ve toyed with the idea of moving over the years but didn’t do it. More debt? More cleaning? No thank you! Now, when our girls are both gone, we won’t have the hassle and expense of downsizing.
These are great tips! Another idea with the credit card, because I know people tend to use the card for everything to build up a credit score, set a limit or make it a profundes credit card.
That’s a good point, Shelly. Using a credit card to establish credit history is a good thing.
I had to look up FOMO (fear of missing out) to find out what that acronym means. Yes. I often feel a combination of sadness and disgust that so many of our most creative minds are lured to the world of advertising — where they employ their creativity to make the rest of us feel like our lives aren’t worth living if we don’t buy x, y or z… Thank you for this very useful series of blog posts. I always pay off my credit card bills each month and live without a car or a cell phone. I do cherish my 20+ year old bike, however… I look forward to the next post on saving, investing and planning.
My bad….I should have know to spell out FOMO because I had to look it up myself a year or two back. I will go in and make that edit. 🙂
I know what you mean about the advertising world. Sadly, people feel they need to keep up with their neighbours, friends and celebrities they see online. It’s a trap I somehow managed to avoid.
I’m on a path to financial literacy and making my money work hard for me. Impulsive buys and ballooning credit card debts are the major money mistakes I’ve made. So yes, I’m keeping track of my expenses these days and even closing credit cards since I know I have one too many.
Liz
http://www.piecesofliz.com
That’s really good to hear Liz. We’ve all made money mistakes. It’s hard to avoid in our consumer culture. The best thing is to recognize them and put yourself on the right path which it sounds like you’re doing!