Money plays an essential role in our lives as it allows us to meet our basic needs. It’s also a tool that helps us invest in ourselves, travel, and improve our way of living. It makes life easier for us to pursue our goals and dreams. But we can easily make some mistakes when it comes to managing our money. And these are money mistakes to avoid if we want to become financially free!
My parents have always lived a very frugal life, and they’ve made saving money their priority.
They wanted to have the freedom to not worry about money and do whatever they wanted in life. Whether that was investing in real estate or affording to go on a faraway vacation.
During my childhood, they taught me everything they could about frugal living. I learned the true value of money and I’ve been passionate about frugal living ever since.
Frugal living helps us achieve financial independence quicker. And this is a goal I would like to reach in the next ten years.
But I think that we can all make mistakes when it comes to managing our money, and they can prevent us from achieving financial freedom.
Learning about financial mistakes that people make is a great way to make sure that you are not making them as well.
Here are 7 money mistakes to avoid to become financially free!
Mistake #1 – You’re living above your means
In our consumerist societies, it can be very tempting to spend a lot of money, way more than you’re making, especially when you know little about how to manage money.
There are many temptations out there that are hard to resist.
The problem with this is that many people live paycheck to paycheck. And they might get into useless debt because they’re unable to cover their expenses.
This situation can get stressful since your bank can charge high fees and interests for getting into debt.
And a rise in income will not necessarily get you out of this trap of living paycheck to paycheck.
Because when people see their income rising, they tend to spend more, and their expenses increase as well. We call this “lifestyle inflation”.
So if you can, try not to live above your means and avoid useless expenses at all costs. This will help you stay out of debt.
Consumer debt is especially high in interests and not worth it.
And please, never go into debt to buy stuff to impress other people. This will do you more harm than good.
Living below your means is a great way to accumulate money, to help you save and invest in the long term.
Mistake #2 – You aren’t putting money aside every month
This is one of the biggest money mistakes to avoid to become financially free. It is crucial for your financial health that you save some money every single month.
If you need help with it, here are 11 money-saving tips for you to start putting money aside every month.
Set an automatic deduction from your pay that will go straight to savings. Saving up this money can have different purposes.
But one of the most useful things you can do with it is to build an emergency fund.
I recommend that you have at least 6 months of expenses covered in a savings account that you can access at any time.
This way, in case of an emergency, you won’t have to worry too much about money. You’ll know that you can survive for a few months with your savings.
You’ll thank yourself in case of unemployment or natural disaster, or if an unexpected expense comes up, like a car breakdown.
According to a 2019 Federal Reserve study, 40% of Americans wouldn’t be able to cover a $400 expense in case of an emergency.
So start building your emergency fund as soon as possible!
Once you have one, you can start allocating money for other financial projects.
You can use it to pay off your debt or you can save up for a down payment for a house.
You might also put money aside to pay for future college fees or healthcare costs.
There are so many options for you to use this extra cash! You may even want to invest to start building your wealth.
Mistake #3 – You’re not sticking to a budget
If you want to uplevel your financial life, you need to know where your hard-earned money is going.
Analyze what your basic needs are and decide how you need to allocate your money to meet them. Your basic needs include food expenses, housing, clothing, hygiene, transportation.
But to reach your financial goals, you also need to intentionally allocate the rest of your money.
Think about a realistic amount for each category of your spendings, according to your current lifestyle.
Is $100 a month on gas too much for you? Too little? How much do you want to spend on entertainment?
Let’s say that your income is $2000. If you need to spend $1000 for your basic needs and you want to save $500 each month, you can’t spend $1000 on entertainment.
Be realistic but keep your financial goals in mind.
When you’re planning your budget, it’s important to think about your expenses several years from now.
If you know you’ll need to buy a car in a year, you need to start saving now to be able to afford it in the future. This will influence how much you need to put towards your savings today.
Once you’ve created your budget, force yourself to stick to it. Know that you’re doing this for you and your family, and you’ll be proud of yourself seeing that you’re sticking to your budget.
Planning how you spend your money is essential to get closer to your goal of financial freedom.
Mistake #4 – You continuously buy things you don’t need
This is one of the most important money mistakes to avoid to become financially free!
In Western societies, we got used to buying every little thing that we may want at a given time.
It is a privileged position to be in, but these are often things that we don’t need. Many people try to keep up with the Joneses.
They buy things to impress other people with their possessions. They think that material belongings are a status symbol.
I’m not saying that these are bad behaviors and thinking patterns.
But, if your goal is to become financially free, you shouldn’t over consume every time you get the chance to. You should avoid buying things you don’t need.
If you get a pay rise, don’t spend the extra money right away. Don’t upgrade or replace your items if they aren’t broken. Don’t go shopping every time you’re bored and don’t know what to do.
To meet your money goals, it’s important to think twice before buying something. Ask yourself if the item is worth it. Also, try not to find excuses for you to buy something.
I’m all for living comfortably and not depriving yourself. But try to only buy things that you need or that bring value to your life.
Shopping intentionally will make you save a lot of money. And it will help you become financially free!
Mistake #5 – You’re not using your credit cards wisely
A big mistake you should avoid making is to go into debt using your credit card.
As far as I’m concerned, I prefer paying everything with cash. I find that we tend to spend less using real money, than when paying with credit cards.
Yet, credit cards can be useful to have as well. But make sure to pay off your balance in full, every single month.
Get into the habit of doing it so that you never have to pay interests for not paying it on time.
Set up an auto-payment so that you don’t have to worry about not forgetting about it.
Avoid using credit cards to borrow money because it can get you into serious money issues.
Many credit cards have 20% interest rates, so the amount of money you owe to the bank increases quickly.
Interests can accumulate so fast that it can get hard for you to pay them down. So try not to get into debt with your credit cards, but don’t be afraid to use them.
If you live in the United States, credit cards are a great way to build good credit.
You may need it if you want to get approved for an apartment lease or to apply for a mortgage to buy a house.
Some organizations and people need to know that you can pay off debt quickly. In short, use credit cards wisely, to build credit, but don’t get into debt because of them.
Mistake #6 – You never buy things second-hand
Buying certain items second-hand instead of new can help you save a lot of money.
Of course, we need to buy some things new. This includes underwear, beauty products, or other things that aren’t safe to buy used.
But by buying other things second-hand, you can save up to thousands of dollars for a given purchase. The main reason for that is depreciation.
The thing is, when you buy an item new, it depreciates as soon as you leave the store.
Some things can lose more than half of their value as soon as you buy them and they’re not considered “new” anymore.
The most common example is cars. When you drive a new car off the lot, it loses several thousands of dollars in value. Most new cars will have lost around 60% of their value after three years.
This concept of depreciation also applies to many other material things. This includes books, clothes, electronics, jewelry, furniture, games.
I recommend getting these items second-hand when possible. You will end up saving a lot of money compared to if you bought them new.
And the plus side is that you’ll be able to put it towards your emergency fund, your debt, or future investments!
Buying things second-hand is also one of the best ways to help the environment and to be more eco-friendly.
I made a whole blog post about how second-hand shopping can save the planet, you should go and check it out!
Mistakes #7 – Money management is not a priority for you
Many people think that money management is easy and that they don’t need to spend time thinking about it. They avoid asking themselves some basic questions.
Where is your money going? What are your sources of income? What financial goals do you need to achieve in X years?
If they don’t reflect on these questions, how are they even supposed to reach their goals?
Stop postponing the time when you’ll finally sit and think about your finances. Don’t be afraid to make these decisions because they aren’t static.
If your circumstances evolve, you can change your goals and the way you manage your money at any time.
Be flexible with your money management and the decisions you’re making. You should also always know where you stand financially, at any given moment.
If you have any money issues, you need to be aware of them as soon as possible so that you can address them in time.
Knowing where you are financially also helps you make thoughtful investing and saving decisions.
You can easily think about how to make your money work for you.
So not making money management a priority is a big money mistake to avoid to become financially free.
There you go! I hope you enjoyed this blog post about 7 money mistakes to avoid to become financially free!
I’m sure that if you avoid making these mistakes, you’ll end up saving a lot of money. It means that you’ll be on the right path to achieve financial independence in the future.
Have you already made any of these money mistakes and what have you learned from them? What are any other money mistakes to avoid to become financially free?
Tell us in the comments below. Let’s help each other on our journey to frugal living!