10 Ways We Screw Up Our Finances ~ Personal Finance Blog

The average American household has roughly $16,000 in revolving credit card debt.  The average American HOUSEHOLD income is roughly $44,000.  About 24% of all Americans have no savings at all. Recent polls show about 52% of American households find it difficult to pay bills every month. 16% were late on their mortgage payment. 18% spend more than their income (and I betcha a cool million that statistic is low). 40% of working Americans are NOT saving for retirement. FORTY. PERCENT. PEOPLE. 

We Americans are not terribly good with money, as a whole. Financial fitness wasn't taught in school when I was a youngin'. We never had a class that went over savings, mortgages, bill payment, or insurance. But, damned if we didn't learn what an equilateral triangle was!

But I digress.....

Typically, with folks in my generation, we learn late that being financially fit is a MUST if you're going to live a happy, healthy, stress-free-as-possible existence.

So, how do we go astray?

Here's 10 BIG ways we Americans screw up our finances. But, all is not lost, people. There's always hope. There's always time to do it another way.

1.  Using Credit Cards

This is a big one. Statistics show you spend 12-18% more when you use a credit card than you do with cash. Precious few people are responsible credit card users, even if they believe they are. If you're one of those people who puts EVERYTHING on a card to get "points" or "miles" and then "pays it off at the end of the month"....you are one job loss away from financial bedlam. 

Cash is king. Cash is tangible. Cash stops you from overspending. It's simple science: you spend more with credit. Use cash! Points will never make you rich. You will never beat the bank at the game they invented. Use cash, save the difference.

2. Not Having an Emergency Fund

There's a reason this is Dave Ramsey's 1st Baby Step. All the other steps rely on you having funds to cover an emergency. A REAL emergency, not Christmas. Not new shoes. 

Your baby emergency fund helps guide you along debt repayment. But, most Americans have less than $1000 in the bank for emergencies. They rely on "emergency credit cards". See #1 for why that's a bad deal. 

If you're saying "PG, we live paycheck to paycheck, how can we get an emergency fund?"

It's time to start selling stuff. Sell so much people think you are crazy. Sock away every dollar you make, you'll be amazed how fast you can grow $1000. Some people take sacrifice to a NEW level: they sell their car and drive a hoopty....they move to a smaller house or an apartment....they start eating nothing but Ramen. What level of sacrifice you're cool with is all personal to you and your family, but it CAN be done. Even on a tiny income.

3. Keeping Up With Those Joneses

So and so has a brand new house. So and so has a 2016 BMW with leather seats. So and so is carrying around a Louis Vuitton and dammit doesn't she look good? 

Envy. We WANT that. How come THEY have it and I don't. Envy drives spending. Brands know this. Salespeople know this. 

It's SUPER hard to ignore that. It's what makes the world go round. But, striving for a lifestyle you simply cannot afford is not bright....and it doesn't matter what you buy, it's not creating a lasting legacy for your family. 

I once saw on TV this woman justifying her designer handbag collection by saying it was an "investment".

It was one of those moments when I remarked "you keep saying that word. I don't think it means what you think it means". 

THINGS don't matter. People do. Pick one stupid purchase you make on a regular basis (like Starbucks every morning or expensive brand name ANYTHING....) and filter that money into a growth stock mutual fund. Let compound interest work its magic. THAT'S an investment.

When the Joneses hit retirement age and don't have a proverbial pot to piss in....then they will be envying YOU.

4. Not Having A Budget

If you're spending with out a plan, plan to fail. Seriously. There's no way in h-e-double-hockey-sticks anyone can just go and spend wildly without any set plan and expect to be financially fit.

Now, we budget like crazy folks. Every cent that enters our home has a job. If it's left without a job, it goes to savings or debt payoff. That's it's job. I do the budget on an every-other-night-basis....because some sick part of me finds great enjoyment in balancing the budget. I'm a mega-nerd. There might be something wrong with me.

Get a budget together. Work on it. Don't give up if the budget fails the first month. It takes about 2-3 months to get it working well. 

5. Going Out to Eat

We are eating our savings. Believe me. Stopping in for a quick lunch, going out for an expensive date night dinner....we spend a ridiculous amount of money on restaurants. It stops being "special" and just starts being what we do on a regular basis. 

Learn to cook at home. Learn to meal plan. Save, save, save!  Reserve going out to eat for special occasions. Make it "special" again. (We REALLY need to work on this!)

For one whole month write down EVERY restaurant visit. Every fast food stop. Every Starbucks run. See that number at the end of the month? Gross, eh? Yeah. Food is a budget killer. 

6. "I Deserve It"

I work hard. I sacrificed. I NEVER get to....  Just this once. Life is short. YOLO. All that. We justify spending in a myriad of ways. I've done it. We've all done it. A lot of this takes a re-frame of your thinking. Sure, we all want something to show for our hard work...whatever it is we do....but what if that "something" became debt freedom and a healthy retirement instead of a new car? 

Sure, people can't really SEE your healthy retirement....at least not until you retire and buy that killer dream house with green shutters on Prince Edward Island (ok, that might be just me).....but you can see it. And it secures your legacy.....far more than a car, a shirt, a knick-knack, a piece of jewelry.

7. Keeping Separate Finances from Our Spouse

This rarely works out well. You can't have a partnership where the left hand has no idea what the right hand is doing and expect to have a joint financial fitness. 

You are partners and any plan works better when you work it together and keep one another accountable.

8. Ignoring Ways To Make Money

I'm super lucky because I'm self employed. As hard as that is sometimes (especially during slow season)....I have a skill set that can be applied in so many ways that pay. I can do commercial work, food photography, head shots, family shoots. When things get slow I can start planning for Senior Portrait season and taking deposits for that. Weddings book all year round. 

This week we started clearing out our closets in preparation for staging our house and I came upon the massive collection of vintage children's clothing I've amassed over the past 9 years. I decided instead of moving it to the new house, where it would no doubt just clutter up a basement closet.....I was going to sell it off. 

I started a little Etsy store called "What Alice Found" (it was an old name. I used to be a big Lewis Carroll junkie)....and listed every piece on there. In less than 20 minutes from the first few listings I had sold $40 worth of vintage stuff. Check it out if that sort of thing does anything for you :) 

It may seem like a pittance, but that adds up....and if you can get creative, you can create a cash flow that pads your debt repayment, savings, or investing fund. 

If you're NOT self employed, make sure you're always keeping your resume up to date, just in case a great opportunity presents itself. Take advantage of overtime if you can. Leverage a skill you may have after work (like fixing computers or teaching yoga).

There's a great place for people to go when they need money: TO WORK! If you can't find the work, create the work. Get creative! 

9. Taking Out Loans

I'm not even going to MENTION Payday loans here because those are the work of the Devil. I've never taken one out myself but I've heard they have ridiculous interest rates and they pretty much decimate your finances. They are BAD HOMBRES. (ha!) 

Regular loans aren't much better, honestly. The only loan Dave Ramsey approves is a mortgage and only under certain circumstances (which we are choosing to go a different route on and hoping he doesn't somehow find out and smote us)

But HELOC loans? Bad news. Loans from family and friends? Even worse. Don't make your family your lender. It's just a good way to make every family gathering really awkward. 

I was recently watching that show Outdaughtered (which is SUPER CUTE, btw) and the couple on there was kicking around the idea of buying into a spin cycle business. Well, problem #1 is they didn't have the cash on hand to buy in to anything (there were about 100 problems with their plan, but that was the big one). They had some financial planner come and talk with them and this lady actually SUGGESTED they borrow against their house to buy into this plan.

I almost threw the remote at the TV (then I remembered we scored our TV at a tremendous deal and I didn't want to have to buy a new one). 

No. No. Bad. NO.

If you want to take a vacation, start a sinking fund and save for your vacation.

If you want to re-do your kitchen, start a sinking fund and re-do your kitchen when it's full.

Once you are debt free, socking away money for things you want should be a breeze....you're already pre-conditioned to allocate money! 

10. Declaring Bankruptcy

This is a LAST. RESORT. MOVE. guys. Even D-Ram suggests a 401K Loan (EW) over Bankruptcy. It's that damaging. 

You may feel like the hole you dug yourself is inescapable. You may feel helpless and hopeless looking at a stack of bills and no money in the bank.

But don't throw a grenade on your entire life because things look dire now. 

Start with one thing: write EVERYTHING down. See it on paper. And then just BEGIN. Take an extra job. Call your creditors and see what you can do to possibly lower interest rates. SELL EVERYTHING YOU FREAKING OWN. Seriously....if you are at the doorstep of Mr. Bankruptcy, it's time now to liquidate everything under your roof and claw your way out.

Is it hard? OH YEAH.....is it worth it? YES. Because after you're done....after you're free....and you did it without bankruptcy....you are TRULY free. 

******

There's lots of things we all do every day to screw things up. I get weak and order Panda Express. My husband gets weak and doesn't join me for budget meetings all the time. The kids NEED stuff (dang kids and their needing things....lol). 

But this all CAN be done, and it's not a life of servitude and sacrifice all the time. Even if I may make it seem that way sometimes. 

You can live a wonderful, full life and still be financially fit. A little self-awareness goes a LONG way to start down that road.