5 Mistakes People are Making with Their Money

I believe it was Charles Dickens who once wrote the immortal words “Mo’ money, mo’ problems.” Yet as Mr. Dickens’ impoverished cast of characters demonstrates, it is more often the case that the opposite is true—less money, mo’ problems.

For many recent college grads saddled by student debt, it can be tempting to live in the short term when it comes to money. Likewise, for many 30-40 year olds, retirement seems to be a small spot on the horizon. But good money strategy means planning for emergencies before they arise, and constantly orienting your actions to circumventing those emergencies altogether, if possible.

Here are some common money mistakes people need to change to become more financially stable:

Not diversifying income.

Investors know that one of the most important aspects of compiling a stock portfolio is diversifying your investments. This mitigates the risk of investing, since your portfolio is comprised of independent ventures. In the same way, your income should be diversified. There are many ways to diversify income, but broadly you can do so passively or actively.  Passive modes of income diversification include rental properties or dividend stocks. Active modes include things like freelancing or independent selling. In either case, the idea is to minimize the risk attached to each individual income stream.

Spending too much money on kids.

Even people who are rigorously frugal about their own purchases can become overspending lunatics when it comes to their children—especially the first child. In fact, children need very little to be happy, and their imaginations will likely be expanded from not being inundated with contraptions and toys. Most of the money spent on children should be husbanded for important investments like education. They’ll be much better off having that money saved for their college education.

Taking on debt and ignoring it.

This is a mistake particularly common among the millennial generation. A 2013 study found that a shocking 24% of students with federal debt were unaware that they had any federal loans on the books; another 14% were even more unbelievably unaware that they had any loans at all. The current state of US education means that unfortunately, most millennials will leave school with about $30,000 in debt. Forgetting about that debt will impact one’s economic standing later. Paying more than the minimum amount per month will help to decrease total amount you pay back.

Not addressing credit card debt.

While credit cards can be an important way to build your credit score, and can help as a safety net in case of an emergency, carrying a credit card balance can be an unnecessary financial drain. For your average credit card holder paying only the minimum amount per month, carrying a balance of $1,000 with a typical card will incur at least another $1,000 in interest. Credit cards should always be a last resort in money crises.

Paying unnecessary bank fees.

Gone are the days when banks could dictate ludicrous policies. With so many personal banks, there’s no reason to stick with a bank that charges for accounts or implements overdraft fees without warning.