12 Money Mistakes People Make (and How to Avoid Them)

[Music] so the earlier you can start the better off you're going to be because here's the deal it's not if something is going to happen it's when hey you guys welcome to this episode of the rachel cruz show and it is april and it is national financial literacy month so financial literacy just means knowing the personal finance basics to help you win with money so in order to honor financial literacy month we're gonna talk about 12 money mistakes for you to avoid and these are really important because they can make or break your finances and number seven and eight on this list are two huge reasons why people don't build wealth so make sure to stick around for that and at the very end i'm gonna talk about my number one pet peeve i have about spouses and how they handle money all right so let's start off the list number one not educating yourself about money listen for a lot of people they grew up in a house where money was not talked about they went to a school where money was not talked about they went to church where money was not talked about they went to sports where money was not talked about that is a very real thing so if you don't know how to handle money you have to learn but the encouraging part is that personal finance is 80 behavior it's only 20 head knowledge so learning the stuff it's not going to be completely over your head or you feel like you have to have a master's degree in finance or something like that you can know the basics but you have to know the basics in order to do them so courses like financial peace university really do help show you and guide you when it comes to your money number two not budgeting oh this is one of my pet peeves where i'm like no you have to budget you guys you have to i don't care how much money you make i don't care how much debt you have i don't care any of that you have to live on a budget you want to live on a plan and again a budget is not a bad thing it's not one of these things that you think oh i can't have any fun i can never go on vacation i can never go shopping i can never go with you because i'm on a budget that's not what a budget is a budget is just a plan for your money now your money may tell you hey we're going to sacrifice a little bit this month in order to meet other financial goals and all that yes that may happen there are guard rails there are boundaries but it is your plan and it gives you freedom to spend it gives you permission to spend we are not second guessing i'm thinking is this okay it's not it's all in the budget it's all in the plan number three not adjusting tax withholdings if needed so if you have gotten a huge tax refund in the past that means your money that you've been working for that could have been in your paycheck was sitting in washington dc not earning interest doing nothing and then was sent back to you so go and adjust your tax withholdings now ideally you don't end up owing the irs money and ideally they're not sending you a bunch of money you want to find that perfect medium so your hr department at your job should be able to help you make the adjustment number four thinking that you don't need an emergency fund so when we talk about the baby steps the very first thing you want is a thousand dollar emergency fund then you get completely debt free except for your mortgage and then baby step three is saving up three to six months worth of expenses because here's the deal it's not if something is gonna happen it's when things are going to happen and it feels like things happen all at once we're kind of in that now i swear our cars the air conditioning and the vans are being like making this crazy noise the blinker will not get fixed uh in winston's truck his stuff i mean it just feels like everything falls apart everything falls apart at the same time and when you don't have cash when you don't have money there to catch the things that are an emergency then it takes something that could just be an inconvenience and frustrating and annoying to a complete crisis okay so an emergency fund one thousand percent is needed and your fully funded emergency fund again is three to six months of expenses after you've become debt free number five paying off your debt highest interest rate to lowest interest rate now mathematically that's not a mistake i get it that makes mathematical sense but here's the deal personal finance it is more about your behavior and there is something to be said about this process where you as a person when you you have a goal and you hit it and you're like oh it's possible like i wanted to do that and i did it that is huge that changes your motivation that changes the course of what you're doing and this is anything in life but with your money and when you're paying off debt paying off debt is such a huge goal for people that being able to get your quick wins by paying the smallest amount of debt off first regardless of the interest rate gives you that motivation to think okay i can do this so don't discount the human spirit over just the math so when you're getting out of debt pay off the smallest amount to the largest amount number six only paying the minimum payments on your debts so what ends up happening with this is that you're just taking years and years and years and years and years and years and years and years and years to pay off debt versus saying i'm going to get so intense and i'm going to pay this off on average in 18 to 24 months that's what people doing with that snowball where they're like i'm not gonna just just work my way through i'm actually going to throw extra money i'm gonna go crazy i'm gonna sell stuff we're not gonna go out to eat we're not going on vacation i'm gonna take on a second job and we're gonna do everything we can to increase our income throw extra money in the debt take things out of our house sell stuff do what we can to earn extra cash there to throw out the debt and then again cutting expenses and living on way less than you need again you're kind of microwaving that process versus just going through life paying minimum payments and that's just what you do versus saying okay we're gonna take all of our efforts and we're going to put it on our smallest debt and then we'll move over to our second smallest and you keep going down the line number seven buying more house than you can afford so we talked about this in another video on home buying but i want you to put at least 10 to 20 down and i want your payment to be no more than 25 of your take-home pay on a 15-year fixed rate but a lot of people they go and they buy a house and the mortgage payment is 50 of their income and it's just hard it's just hard to get ahead financially when half your paycheck is going directly just to your home so looking at a house and saying okay this house is something that we want in life we'd love to own a home which i think is a great thing but you actually want to do it way more conservatively than most people do and don't forget about closing costs moving costs all of that when you're buying a house number eight allowing lifestyle inflation to happen so i did a video about this as well about lifestyle creep you kind of just keep going and if you're making more money you kind of just bump up that lifestyle you almost don't even realize it because the numbers work and you just kind of go go versus saying okay let's actually take an inventory of where we're at and if you still have debt and you don't have an emergency fund and you are making more money take that extra income and let it work for you versus just kind of blowing it on your lifestyle now eventually yes it's fine to increase your lifestyle as your income increases when you don't have debt you have an emergency fund you're funding retirement all of that but don't let lifestyle creep happen number nine waiting to save for retirement so this is a hard one because people get to you know i don't know their 50s and they think oh gosh you know i haven't really put a lot away that's why getting on this plan right where you are no matter your age is so important because i want you to put 15 of your income into retirement and i want you to do that after you're debt-free and you have your emergency funds but as soon as you can start you guys the better off you are you know you look at compound interest you look at when you start earlier how much more money is going to be in there to be working for you and making interest not just on the interest but on the actual principle over time and as it gains more money i mean just as like this mathematical explosion when you look at it so the earlier you can start oh the better off you're going to be but remember it's not too late if you are in your 50s and you're saying yeah i haven't saved then start now start start actually saying i'm going to get out of debt i'm going to have an emergency fund have that solid financial foundation and then look towards retirement number 10 buying a brand new car now the car market i know it's insane right now it's crazy and for some people they're like i can actually buy a brand new car cheaper than a used car right now all of it okay so there's all this discussion so this piece of advice is for sure when everything kind of settles out because when you drive off the law and you lose value instantly from a new car until you have a million dollar net worth can you take that hit but i do want you to price it out and again people are thinking well i can buy a new car cheaper than a used car and that might be true so in this case that might yeah if that's true then it's true but a lot of dealers are marking up the msrps i mean they're it's not becoming as smooth and as clear as you think it is so ask a lot of questions number 11 putting all of your eggs in one basket when it comes to your investments this is why i do not like single stocks i never want to put things in just to one category so a mutual fund is 90 to 200 different stocks in a fund okay so this is where this is diversification if you will which means you just spread your money around you're not banking on just one company because while it might sound good in the moment you might think oh yeah well so and so they're going they're doing great and this this and this you never know what's gonna happen it's not smart to you know put all your money on one horse is that the phrase people say it's good to spread your money around that's why i love mutual funds number 12 last but not least a huge mistake that people make is not being on the same page with their spouse when it comes to money you guys this is so important if you are married you guys have to be one in the subject that means you have one checking account that means you have one budget when the money comes in i don't care who earns what it is in the account and it is yours together working together is so key and if money is the thing that you think well i don't want to engage that conversation because we always end up fighting so we're going to keep things separate it's just easier that's the exact conflict you need to have that's exactly stop avoiding it because if you start to avoid that marriage other things start to happen in your marriage not just about money so being one as a team seeing yourself as one is so so key in your marriage and in your money so before we wrap up i wanted to remind you guys about the survey that my team and i are doing so we can keep providing content that's helpful and relevant to you here on the rachel cruze show so today is the last day to fill it out if you fill it out today it helps us again know what you want and you're going to be entered to win a hundred dollar gift card and remember we all make mistakes with money okay it is common but i want you to learn from those mistakes and actually say hey i can change the way i view and i handle my money and that's gonna change the outcome and hopefully for the better so remember to take control of your money and create a life you love

Channel: Rachel Cruze

Views: 48,279

Keywords: the rachel cruze show, the rachel cruze show youtube, money, budget, how to save money, budgeting, personal finance, rachel cruze, save money, how to budget, debt, saving money, save, how to make money, ramsey, finance, how to get out of debt, debt free, 12 Money Mistakes People Make (and How to Avoid Them)

Id: vG6bSRDUiUw

Length: 11min 23sec (683 seconds)

Published: Fri Apr 22 2022