Disclosure: This post contains affiliate links. If you use them I may receive commissions, at no extra cost to you. See my full disclosure policy for additional information.
According to Dave Ramsey, data from a survey he performed in quarter 2 of 2023 revealed that only about 48% of Americans reported that they would be able to cover their essential expenses for 90 days if they suddenly lost their income, and only 31% of Americans would be able to cover their personal expenses for 6 months or more. In this article, we’re going to take a closer look to a few common personal finance mistakes you have to stop making in 2024 in order to get your financial health in shape.
I’m coming to realize that the way that my parents ways of coming into and managing money (and probably your parents too if you’re a millennial too) aren’t ways that will work for us in the 21st century. Not to say that the way that they managed their finances is wrong. Just that the world is very different now and there are so many new factors that need to be considered.
Such as how easy it is now to go online and just buy any little thing your heart desires at a given moment. Or how balancing a check book and spending time daily reassessing your personal finances is essentially a thing of the past with how digitalized managing money and bills has become. Allowing debt to rack up and a credit score to be pushed to the back burner are a few other not so great habits that can make or break your personal finances. Lastly, finding a way to manage your money that allows for savings to grow as well can be a major personal finance pit fall.
I get it though, I do. It’s become nearly impossible to save money, pay down debt, and live a financially comfortable life without feeling like you are living paycheck to paycheck and unable to actually enjoy life. Especially for those of you out there with tens of thousands of dollars in student loan debt looming over your shoulder while you’re also working tirelessly to pay for life essentials such as a car, place to live, groceries (that are ridiculously expensive at the time of me writing this article. I can only hope that when I come back to update and refresh this article in a year that’s not still the case.)
Overspending on Non-Essential Items
Overspending can easily be thought of as “living beyond your means”. But what exactly does that mean? To put it simply, overspending is spending money that you cannot afford to be spending, on things you don’t necessarily need. Living paycheck to paycheck and still not being able to put money into savings or get ahead on your bills is possibly a sign that you are overspending.
There are a number of reasons that people may overspend. Such as social pressures, emotional or impulsive shopping stress, or possibly feeling a little too comfortable to spend more after getting a raise. There is actually a field of “financial psychology” that delves further into exploring why people overspend and helps them overcome these bad personal finance habits. Read more about it here in this article by US News.
You probably already saw this one coming, but the best thing you can do to start getting your overspending under control is to create a budget. Sitting down to look at where you stand financially can be a real eye opener sometimes. If your bank uses an app, there is sometimes a feature that can break down your monthly spending by category. Such as food, gas, groceries, online shopping, travel, etc. You might be shocked to find out that you’re spending hundreds of more dollars on dining you each month than you thought you were. Or you may discover you have a subscription to a streaming service that you completely forgot about.
Something else that can help to cut back on your overspending is to write out all of your wants and needs. By that, I mean write out your must-have monthly expenses, the non-negotiables like your utilities, mortgage, gas for your car, groceries…those kinds of things. Then think about the other things you spend money on daily. A $7 latte on your way to work every day, a few random Amazon purchases every other day, and maybe eating out for lunch everyday at work are areas that you might be able to make some adjustments in.
Implementing a cash diet may even help you to reign in your extra spending. Check out my blog post about cash diets, to learn more about how it will help you with your personal finance goals.
Not Having a Personal Finance Budget
As I mentioned in the last section, having a budget of some sort can help you get a good look at the over all monthly status of your personal finances. Not having a budget allows room for overspending as well as a lack of putting money toward things that will help you like your emergency savings account or personal savings.
One common misconception about budgeting is that you have to have it figured out down to the last penny, and that you will never be allowed to use your money for anything fun. First of all, whether you budget down to the exact penny or not is completely up to you. Just the fact of having one that work for you is already a huge step in the right direction.
Nailing your budget down to the penny works great for some people, while for others, like myself, my strategy is little less complex. I calculate out how much each of my non-negotiable bills such as mortgage, car payment, insurance, etc costs each month.
I get paid every other week, so I divide those bills in half and always make sure to take those amounts out of each paycheck first and foremost. Then I have a set amount that goes into my savings account automatically each paycheck as well. I use my PayPal account with “goals” to divvy up these amounts each payday so that I have the money I need set aside and ready to pay my bills the moment they come due.
If you want to learn more about how I use PayPal to manage my personal finances each month, check out my blog article about it here.
Now you might be wondering where to even begin with creating a budget that you’ll stick to. Key words being “stick to”. There are a few key steps you can easily take to help you create a budget that will work for you. You’re going to need a pen and some paper, or the notes app in your phone for this so get ready. It’s pretty straightforward though so don’t worry.
First step is to see what you have to work with. By that, I mean write down your monthly income. If your paychecks aren’t always consistently the exact same, you can look back at the past few months and use your lowest paycheck as a reference point for creating your budget. Next you’ll need to list out your monthly expenses. All those non-negotiables we talked about earlier. This isn’t to say you can’t have a “fun money” category in your budget. That just isn’t a necessity if you’re trying to combat your overspending habits.
Now that you have everything written out, you can take those monthly expenses and work out whether you want to pay one or more of them in full on your first paycheck of the month, or take half of a payment out of the first and second paycheck in preparation of paying bills in full at the end of each month. The second method is what works for me, but I’ve also met people who successfully pay all of their bills in the first paycheck of the month and the second one can be put towards other things like savings or getting ahead on the next month.
Want to learn more about creating a budget that works for you, that you will stick to in the long run? Check out this article from Dave Ramsey’s website about creating a budget, step-by-step.
Ignoring Debt and Credit Score
Managing your debt and maintaining a good credit score may sound near impossible in this day and age. With high interest student loans looming over your head and the cost of groceries being at an ungodly high as I write this blog post, I can understand why managing debt can be a daunting task. There also may be come of you out there that believe credit scores are a complete sham and waste of time.
I can’t say I disagree, but know that the system we have in place requires good credit in order to get ahead when you don’t have tens of thousands of dollars in cash, stashed away in your twenties. SO let’s talk little about managing debt and focusing on your credit score in 2024.
There are a number of common mistakes that people make, including my self at times, when it comes to managing their credit and debt. These mistakes include only paying the monthly minimum due on a balance, not paying attention to your credit score over time, missing a monthly payment (this one really screwed my credit over several years ago. I missed ONE payment and my score dropped 56 points.)
Only paying the monthly minimum on a credit card balance is actually part of 3 different debt mistakes you might be making. For one, only paying the monthly minimum is going to get you no where in paying down your debt. Having a balance month to month that you aren’t able to pay down is also something you should strive to avoid. This is also a sign that you are probably over spending, if you cannot afford your monthly needs in cash and have to charge them instead. Emergencies side.
Neglecting to pay attention to your credit score over time can get you into a real mess then it comes time for you to make a big life purchase, such as a house or a car that you need to finance. Having a good credit score will not only help you qualify for a loan on either of these items, but also put you in a good place to get a low interest rate. Which means lower monthly payments with more of your money going to the principal (the main balance) rather than to interest (the bank). This is why it’s so crucial to be paying attention to your credit score and working to keep it at a high number.
There are a few effective ways to elevate and maintain a good credit score. Those ways include paying down monthly credit card balances each month, always making payments on time, and maintaining a good debt to credit ratio. This is the ratio of how much money you owe on credit cards versus how much spending power you have on those credit cards. So obviously you want to have more open credit than debt. This doesn’t mean you should open more credit cards to fluff the numbers up in your favor. It means keeping your debt under control on a monthly basis.
Want to read more about some credit card mistakes I made in my twenties? Check out my article about it here.
Failing to Save for Emergencies
If 2020 taught us nothing else, it’s be prepared for the unexpected. Having an emergency fund should be top priority next to paying down debt. Your emergency fund should not be your credit card. Sure, it’s nice to know you have it in case of emergency, but the goal is to have cash ready to go in case of an emergency. Not saying to save physical cash in a shoe box under your bed necessarily, but a savings account with funds in it that you can pull at any time.
As a registered nurse, I was “lucky” to have such solid job security in 2020 and 2021. There were so many people who weren’t able to work due to the pandemic. Sure, the government paid out rather generously to these people in order to keep the economy afloat. But what if they hadn’t done that? Or hadn’t paid out enough for you to support your family’s needs and keep a roof over their heads for multiple months?
There are a few common reasons that people neglect to start an emergency fund, so if you find yourself doing any of these things you might want to consider switching up your financial game plan. You might be relying too much on your credit cards. Either using them for everything, or just thinking they are your emergency fund. Therefore you don’t need to set one up otherwise. You also may be prioritizing other financial obligations and putting your savings on the back burner.
Starting an emergency savings fund all starts with creating and sticking to a budget. The “extra” money you might have after paying your monthly bills could probably be allocated into your emergency savings rather than into eating out at work every Wednesday, or a gym membership that you haven’y utilized in 3 months. Even putting way $20 a week into an emergency account is better than saving nothing at all.
You don’t want an emergency to be the reason you realize you should have started a savings fund years ago.
Not Investing for the Future
Investing in your future is just as crucial as managing your personal finances in the present. 65 might feel like a long time away when you’re only 25 years old, but it will sneak up on you before you know it, and if you want to have a comfortable retirement that includes having extra money to actually enjoy your retirement. I don’t know about you, but I don’t want to still be working full time when I’m 65+ years old, just to make end meet and never be able to actually retire and enjoy that point in my life.
You might be thinking “that’s what social security is for”, but that’s your first mistake. I know “they” are always saying that social security is going to dry up but then it never does. That doesn’t mean it still won’t right before you retire. When it comes to investing for your own future, you should only be relying on yourself and what you can put aside while you’re still young and working.
If your employer doesn’t ofter retirement benefits such as a 401K, you’ll have to create an account of your own to start stashing your retirement funds away in. And I’m not talking about some run of the mill savings account with your bank. For retirement funds, you are going to want to look into IRA options. There are two different types of IRAs, a ROTH IRA and a traditional IRA. There are a few key differences between the two, but ultimately it comes down to whichever one fits your lifestyle better.
Conclusion
Set your self up for financial success in 2024, and avoid these 5 personal finance mistakes. Catch your self when you are considering buying something that you don’t NEED, like a $7 latte when you have a perfectly good coffee maker at home. Take an hour out of your day this week and create your own budget to bette manage your money. Stop ignoring your debt that’s piling up and neglecting to check in on your credit score. You have to face these things in order to conquer them!
Lastly, saving your money for emergencies and your future should be one of your top financial priorities. Life sometimes throws us curveballs and you don’t want to be left standing there with only your credit card to get you through an emergency. Or find your self at 40 years old with no money set aside/invested for your retirement.
Don’t put your own personal finances off any longer, and start taking steps to stop making these personal finance mistakes, today. Start your budget and start planning emergencies and your future!
Have you done something new this year to get yourself in good financial health and stop a financial mistake you’ve been making? Tell me about it in the comments below! I’d love to know what other mistakes I could be making.
Leave a Reply