3 Big Money Mistakes . . . and What to Do About Them
by Nate Wright
I’ve had the privilege of spending the last twelve years of my life working in the financial services industry. Starting in the industry during the Great Recession of 2008 was certainly a bit of trial by fire but despite the market drop I was hooked. Through countless hours of conversations it’s been a joy to watch my clients fulfill their dreams. Sending kids to college, taking that trip they’ve always dreamed of, and being able to retire free from financial worries are just a few of the perks I get to enjoy. I wish I could say that those are the only conversations I get to have, but unfortunately, I’ve also seen what can go wrong and how a critical mistake or two can derail years of hard work. While there are many things that can potentially go wrong, there are a few mistakes I see repeatedly that we would all do well to try to avoid. These mistakes will hardly be surprising but they are examples of how something sounding easy can be much more difficult to put into daily practice.
Big $$ Mistake #1
If there is just one thing you take away from this post please let it be this: The number one money mistake that I see derail people from their dreams is spending above their means. I would estimate 90% of all money problems would be eliminated if you would just follow this simple principle—don’t buy houses and cars (and other stuff) you can’t afford. We often ask the wrong questions. When we look at a potential purchase the question should always be, “How much does it cost?” and NOT “What are the monthly payments?” All too often instead of our tithe going to God, it’s sent to the bank to pay the mortgage or even worse to the credit card company to pay for all the other things we can’t afford.
But there is a better way, and I want to offer some practical advice. The easiest way to avoid spending more than you make is to start each month with a written or online budget. What income will be coming in that month? Set aside 10% for your tithe to God. With what’s left over make sure your food, shelter, basic clothing, transportation, and utilities are taken care of. John Maxwell has said, “A budget is simply telling your money where to go instead of wondering where it went.” Approaching your money this way, especially if it’s the first time, will make it feel like you’ve received a raise. It will eliminate money fights if you’re married. Like anything, the more you do this the easier it will become. Just start. February is right around the corner, how’s your budget coming along?
Once you set your budget it can sometimes be a little scary to actually see the mess you’ve written down on paper. The mess is there regardless so better to attack it with a plan than close your eyes and pretend it doesn’t exist. I’ve yet to find a better system of attacking this debt than what Dave Ramsey calls the debt snowball. List all your debts from smallest to largest. Pay minimum payments on everything but the smallest debt and throw all the money you have at that smallest debt. Once this is paid off, take that cash and put it towards the second smallest debt. Keep on going until all your debt is paid off.
Big $$ Mistake #2
The second big mistake I see in many people is not starting to invest for the future as early as we should. Once you have your debt cleaned up this is where to start putting all that extra money you have each month. It doesn’t take much for the power of compound interest to work its magic. Start saving $100 per month when you’re 20 and if you average 12% you’ll have $1.1 million when you turn 60. Saving and investing isn’t the only area where we get a late start but teaching our children these concepts is another area where sooner is better. The faster kids can learn how money works the better off they’ll be. They’re not going to learn about it in school—it’s up to us as parents.
Big $$ Mistake #3
The third big pitfall I’ve seen is a lack of diversification. The financial industry likes to pretend it started that concept but diversification is actually talked about in the Bible. Ecclesiastes 11:2 tells us to “Divide your investments among many places, for you do not know what risks might lie ahead” (NLT). Spread your money around. Maybe dear old Solomon knew something about money management and planning for the future.
I know some of you reading this feel overwhelmed and helpless right now. I get it. I don’t just mean because of my job either. As someone who was $81,392.79 in non-mortgage debt just a few years ago I know how you feel. It seemed normal, with student loans and a few cars. What changed everything for my wife and I was going through Financial Peace University. You probably won’t be jealous when you see my wife Amber driving her 2004 Toyota Sienna minivan around (and if you are, she’d gladly sell it to you), but not having a car payment any longer gives her the option to stay home with our three sons. God’s way of handling money is best. When I forget this or lapse into bad money habits I think back to the day our oldest son Cohen was born. We had recently committed to changing how we handle our money. The day Cohen was born I received a promotion that would allow us to afford to have Amber stay home with him if she desired. We certainly have our part to play when it comes to how we handle money but I believe the best plan is to trust God to do what he says he will do!
Want to know about Financial Peace University? CLICK HERE.
Nate Wright is a certified financial planner who is happily raising three rambunctious boys with his wife Amber.