If I Knew Then What I Know Now About Finances
We all make mistakes from time to time. But, by learning from common financial mistakes, you can avoid money pitfalls and improve your financial wellbeing.
December 15, 2021
You might not be as knowledgeable about money as you’d like to be, but that doesn’t mean you’re the one to blame. Many of us weren’t taught about money management in school, so we’re left to our own devices — relying on family members for intel or researching the answers ourselves.
That said, one of the top ways to learn about money management is by hearing the mistakes of others. By combining these personal tales of financial difficulty with advice from financial professionals, you can take steps toward a brighter financial future.
Common financial mistakes
We all make mistakes sometimes — but, by keeping an eye out for some of the more common financial problems, you can make better choices with your money.
Here are some common financial mistakes that many Americans report:
Excessive and impulsive spending can prevent you from saving and pile up debt that becomes a financial burden for years to come. Some of the more popular places for overspending include restaurants, bars, clothing shops and coffee shops.
Small purchases may not seem like a big deal, but they can add up. For example, eating just two meals out a week could cost you $60 per week — or $3,120 per year.
Living on borrowed money
At some points in your life, debt is inevitable — like taking out a student loan in college or applying for a mortgage for your first home. These instances could be considered “good debt,” but bad debt is the kind of debt that’s more likely to cause a financial mistake.
In many cases, it’s wise to avoid credit card debt whenever possible. Credit cards make it easy to spend money you don’t have, leading to long-term debt. And, because of high-interest rates, credit card purchases can end up costing you far more than the original purchase price.
Not saving for retirement
Americans are, on average, not adequately prepared for retirement. Up to 80% of households with older adults are struggling financially, or are at risk of falling into economic insecurity as they age. And, because life expectancies are increasing, Americans need to save more than ever to fund their retirement years.
A significant financial consequence of poor financial management is that “catching up” on retirement savings is more difficult than saving small amounts over time.
Because of compound interest, savers who get started with retirement savings early in life are at a huge advantage versus those who attempt to catch up in middle age.
If a 22-year-old starts investing $250 per month towards retirement, they’ll end up with around $775,000 in retirement savings when they turn 65 (assuming average stock market returns of 7%).
If a person waits until age 35 to start investing, they’ll need to save around $650 per month to achieve a similar end result at age 65.
If someone waits until they’re 45 to start investing, they’ll need to save $1,500 per month to reach the same goal.
The longer you delay saving for retirement, the steeper the hill you’ll climb to achieve financial stability. You can use this investment calculator to gauge your own situation.
Buying new cars
A shiny new vehicle can be tempting —but it can be a financial mistake to purchase a new car over a sensible used car.
Why? Because a vehicle is a depreciating asset, which means it loses value over time. With new vehicles, the depreciation can happen very quickly. For some models, the car may lose thousands of dollars in value as soon as it’s driven off the lot.
Plus, financing a new vehicle leads to high monthly payments and extra costs in interest. While it’s important to have wheels, whenever possible, it makes sense to stick to a moderately priced used vehicle.
Not having a financial plan
We plan so many aspects of our lives — from our work lives to our social calendars to what we want to watch on TV. So why, when it comes to our finances, are so many of us hesitant to make a financial plan?
The truth is, if you don’t know where you’re going, you’re not likely to get there.
If your goal is financial freedom, a comfortable retirement or to be able to stop living paycheck to paycheck, it’s important to make a plan.
The benefits of financial planning include having clear objectives for your finances, understanding where your money is going each month and finding the why behind financial sacrifices you may have to make to reach your goals.
Financial lessons from older generations
For younger readers, a particularly helpful financial strategy is to seek advice from older generations. This could mean talking to your parents, family members, coworkers or even trusted older friends.
It could also mean reading financial advice from older generations online. This article from GoBankingRates rounded up some advice from experts and a few highlights can be found below.
“Start early...I started building this little snowball at the top of a very long hill. The trick to having a very long hill is either starting very young or living to be very old.”
Warren Buffet, famous investor and billionaire
“Don’t get into a long-term relationship with someone who is not like-minded with you about money and what’s important to you in life.”
Maggie Tucker and Mike O’Leary, podcast hosts
“Decide if college is right for you. From the years and dollars committed to the relationships forged, whether you pursue a college education will be one of the most transformative decisions of your life. College is not right for everyone, it doesn’t have to be right for you.”
Kyle Crawford, personal finance blogger
On living at home
“There’s nothing wrong with living at home with family for a while to save money… It’s a way to save a lot of money at a time when you need the financial boost the most.”
Jason Vissers, financial analyst
Recovering from past financial mistakes
It’s safe to say we’ve all made a few mistakes in our financial lives. Fortunately, it's never too late to get back on track.
If you’re in debt, for instance, you can create a budget today and start making extra payments towards your debt.
If you have credit card debt, you may be able to benefit from Tally†. Tally is a personal finance app that helps qualifying Americans consolidate their credit card debt. If you qualify, you may be able to receive a lower interest rate and pay off your credit card debt faster.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.