7 Financial Pitfalls to Avoid

I’ve made plenty of financial mistakes in my life. In fact, I’m still trying to correct several of them. I’m sharing them with you so maybe you can learn from my mistakes and think twice before you fall into one of these financial traps:

1. Not Saving. When you are young and free with no family burdens it can be difficult to think down the road. When I started my career, I landed a decent job making a decent wage. I didn’t have problems paying my bills and I didn’t have a pile of credit card debt so I wasn’t worried about money. In fact, I wasn’t thinking about money at all. Saving wasn’t even on my radar. Now, 20 years later, I need to work twice as hard to try to build savings when it could have been working for me all along. When I think back on all the money I wasted on useless items when I should have been paying myself, it makes me ill.

2. Taking on Too Much Credit Card Debt: When I was young, I bought what I wanted, when I wanted it. Since I had nobody to take care of me, I was determined to take care of myself! It didn’t take me long to start accumulating credit card debt… and I wasn’t financially smart enough to pay off the balances each month. I always prided myself on being self-sufficient and paying all of my bills on time. I rationalized that I was in control and could pay them off anytime I wanted to. What I didn’t realize is that by carrying a balance on those cards, they just grew and grew, and before I knew it I was in hot water. As my family grew so did my financial burdens, and it became harder and harder to pay off those balances. I found myself with less time to work and more bills to pay. This is where those savings would have really come in handy!

3. Buying stuff you don’t need: I’m a bargain hunter. I love sales and clearance deals. I’ve been known to pick up truckloads of toys after the Christmas season just because they were deeply discounted. In fact, I still have a barn full of them! But now, when I look back at all the money I wasted it makes me feel sick. If I had not spent money on things I didn’t need, I wouldn’t have all the credit card debt and my house would be much less cluttered! Now I think twice before spending.

There is also the trap of buying something on sale and thinking you will make your money back when you sell it. Guilty! The thing is, in most cases this is just not true. Just as a car depreciates the instant it rolls off the lot, pretty much anything you buy at a store has the same fate. You are simply not going to make your money back trying to sell it at a flea market or yard sale, and shipping has become so expensive that selling online for a profit is extremely difficult.

Detail of small money

4. Refinancing too many times: I bought a condo on my own in my 20’s but my mistake was refinancing one too many times. At first I refinanced to get a better rate, then I refinanced to get more money out of the home. Each time I either took out the equity or rolled all the fees back into my mortgage. I thought I was doing the right thing at the time but the end result was lost equity, more interest and more fees. Even though the value of my home went up, I didn’t see much of that profit when I finally sold my first home.

Each time you refinance it sets the counter back to zero. That means that you are adding another 10, 15, or 30 years onto your mortgage. If you have already paid for 10 years and you take on a new 30 year mortgage you will be paying off your house for a total of 40 years! Also keep in mind that during the first few years of a typical mortgage you are paying mostly interest. It is not until the final years that you are even making a dent in the principle. Of course there are times when it makes financial sense to refinance. You should always check with a trusted financial advisor before making any decisions. *

5. Not selling your first home before buying your second: When I finally met my husband and was ready to start house hunting, I was more than ready to start my future and didn’t want to wait to do things in the proper order. It was a good housing market and I wasn’t worried about selling my condo. It had already doubled in value and I didn’t see anything indicating that would change. After all, if it didn’t sell right away I could always rent it out!

In fact, I did end up renting it for two years, but I never enjoyed being a landlord. I was always worried that I might lose my tenant and would have to pay both mortgages. I knew I couldn’t afford that. Plus, as a landlord you are always at the beck and call of your tenants. When something goes wrong you must fix it immediately. That means added costs and inconvenience. Even though my tenants meant well, they did not always tell me about a small problem until it suddenly became a big one! It can be very stressful having all of this on your mind, and I was one of the lucky ones. I had great tenants!

When I finally did sell my condo a few years later, the housing bubble had burst and I lost out on the value I would have received if I had sold before I bought my house. For me that was a double whammy. Not only did I lose potential value on my first house, I bought my second house at the height of the housing market so it cost me more than its current value. Now, I can’t fault myself for not recognizing trends in the housing market. No one can predict the future! But, if I had been a smart shopper, I would be in a better financial position now.

6. Buying your kids things they don’t need: When I finally settled down to start a family I found myself stocking up on all the baby gear I could find. I was smart enough to recognize that I could not afford “top of the line” items, but I did fall into the trap of buying more than my kids really needed. I remember having a house full of Bumbos, jumpers, pack-and-plays, bassinets and, of course, duplicates for the in-laws! If I had it to do all over again, I would have just focused on the time with my infants and skipped all the gear. Simpler is better! Now my kids are older and together we are learning that it is the small things like a walk in the park, family play time, or just dancing in the living room that really matter. Those are the moments they will remember and those are the moments I’m holding on to.

7. Failing to Plan: It would be great if everyone created a budget and stuck to it, but that is just not realistic. However having a plan and a general awareness about your money (what is coming in and what is going out) is essential. If I had paid more attention to my finances and had a plan for my future I would have avoided almost all of my financial mistakes.

Now I am older and hopefully wiser. I see the error of my ways and I’m working hard to correct financial mistakes from my past. My hope is that by sharing my story, you can learn from my mistakes and make better decisions for your own financial future.

 

Just one more note: Financial literacy has nothing to do with intelligence. Very smart people can make stupid financial decisions. In the past, information was hard to come by, but now it is freely and easily accessible. When I was 20 I didn’t know any better but now I do. Does that mean I won’t make any more mistakes? Probably not! But at least I am on the road to better financial awareness!

* I am not a financial advisor and this article is not meant to take the place of professional financial advice. Always check with your own financial planner before making any financial decisions.

3 Responses to “7 Financial Pitfalls to Avoid

  • Anne-Marie
    1 year ago

    I think most of us have experienced at least one of these pitfalls. Being aware of where your money is going each month is so important. Sometimes it’s hard to do because you don’t like what you see, but once you take that first step, it gets a little easier 🙂

  • Thank you for sharing your story and letting us all know that we are not alone. Many of us have made these mistakes but as long as we all learn from them that is what is most important.

  • Gratia
    1 year ago

    Well said! We all have made mistakes financially; recognizing those mistakes can thwart repeating the same patterns going forward. Very honest and helpful information!

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