We all make mistakes. Everyone does, even the likes of Warren Buffett, Elon Musk, and Bill Gates. The most important thing is to recognize them, learn from them, and find ways not to do them again.
Today we want to share five common money mistakes that might seem like no big deal now, but can easily become disastrous in the long run. Recognizing and fixing them now will put you in a healthier financial place decades from now. Your future self will thank you.
- Head in the sand – Have you ever avoided taking care of something because it scares you or you’d rather pretend it doesn’t exist? While it may lower your stress in the short term, putting your “head in the sand” tends to come back and bite you later on. Whatever you were avoiding usually comes back carrying extra interest, penalties, or repercussions that it didn’t have before. For example, you might be avoiding calls from your bank because you don’t want to know about your overdraft. Drag it on long enough and your bank will block your account. You will then have no choice but to face the bank, and you’ll be in a much worse position when you do. Much better to be aware of your financial surroundings and take care of issues before they escalate.
- Loans to cover living expenses – Many people live from loan to loan, spending money that they don’t have. Remember that just about every loan – including overdraft – charges interest, often lots of it. This means that you will be paying back all of the money you didn’t have to cover that expense when you took the loan, plus even more money. Without drastically changing your spending habits (and/or increasing your income), loans to cover regular expenses will dig you into an even bigger hole, since you will be spending whatever you spend per month plus loan repayments (plus interest).
- Not investing – Thanks to inflation, the value of our money goes down every year, usually by 1-3%. In a year with regular inflation, your 100 shekels would have the same buying power as 98 shekels a year before or 102 shekels in the following year. The only solution is to invest your money in something that will give you interest at a rate higher than inflation. Of course, not all investments are equal. Some carry more risk than others. We’ll dive into the different types of investments in an upcoming post.
- Lifestyle creep – Congratulations on your raise/new job/new source of income! Go reward yourself. You deserve it. But then make sure you get back on budget or make a new slightly larger one and stick to that. When our income goes up, it’s very easy to treat ourselves more. We spend money on more expensive things more often, because “we can afford it.” Instead of using the extra money to invest in our future, we let our spending spiral out of control, either leaving us in the same position we were in previously or putting us in debt.
- Withdrawing your pitzuim (severance pay) or keren hishtalmut (employer backed savings plan) if you don’t absolutely positively 100% need the money now – If you are entitled to severance pay after leaving a job (our employer rights post will be coming soon), taking it as cash will greatly decrease your pension payments in retirement. By not touching it, it will become part of your pension and grow through the magic of compound interest. So too, while your keren hishtalmut (if you have one) becomes liquid after six years, you don’t have to withdraw it! If you don’t touch it, it will continue to grow each year, even if you don’t add anything. (Yay, compound interest!) Both of these are fantastic investment tools that you don’t need to actively manage. By foregoing a cash out of tens of thousands today, you can be hundreds of thousands richer in the future.
What big money mistakes did we miss in this post? What money lessons have you learned from your mistakes?
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