It’s scarily very easy to blow your entire paycheck – a few too many dinners out with friends and your bank account is painfully dismal. But even if you’re the most cost-efficient, financially responsible person you know, there are always times when you might find yourself in a rut because of a money misstep you made for one reason or another. When that’s the case, it’s important to know how to dig yourself out of the hole you’ve dug for yourself to make sure that you’re able to bounce back from your money problem. To help you out, we’ve rounded up a few of the most common money mistakes that people make along with a couple tips on how to recover.
Mistake: Splurging a little too often.
It’s totally okay to gift or treat yourself with something that isn’t exactly within your budget every once in a while, but don’t go overboard with it or you’ll fall into the dangerous shopping spell. Here’s a good way to promise yourself that you won’t go crazy on the purchases: gift yourself no more than once a pay period. When you get your paycheck, dedicate about 5 to 10 percent of it to whatever you are obsessing over at the moment. Have your eyes on something that calls for a little more than 5 to 10 percent of your paycheck? Make your treat every time you get paid to set aside money for your bigger splurge so that you can work your way towards it a little bit at a time.
Mistake: Not having a budget.
Setting goals for yourself is something that is guaranteed to make you successful. However, in order to achieve your goals, you should set a budget for yourself because unfortunately, nothing comes for free. You need to take your money seriously because how you are spending it all now can get you closer to your goals or push your farther away from them down the road. Sit down with a pen and paper (or an Excel spreadsheet) and write down all sources and amounts of monthly income you have each month. Then, subtract your living expenses, like rent, utilities, etc. Look at how much you have left after doing that mini exercise, and then take away about 25 percent of it to put into your savings. Whatever is left after doing these two things is the money you have to pay for things like groceries, meeting up with friends, and other fun activities you have planned.
Mistake: Not putting money into retirement right away.
For the newest generation entering the workforce, retirement is often something that’s not even in the back of their minds. Because of this, they don’t start putting any money into a retirement fund, even though some should be allocated with the distribution of the first paycheck. Next time you get paid, put some of your savings away into a 401(k), if you have one, and pay off any other savings funds that you may have. Whatever is left should go into a retirement fund to prepare you for your future.
Mistake: Knowing nothing about how much to save for retirement.
Most of us have absolutely no idea how much we should be putting into the retirement fund once we have one set up. We’re all going into this completely blind with absolutely no guidance. Start off by asking yourself, “How much will I need when the time comes?” Then log onto your computer, find an online retirement calculator (yes, they have those), and see how much you should be putting away monthly to reach your goal.
Mistake: Not planning your estate.
If you have a family and a home or a business that you own and you don’t have everything planned out in case of an emergency, everything you have ever worked for could be in jeopardy. Take initiative of your life and find an attorney to help you write up your will. If paying for someone to help you is too expensive, there are other measures you can take to get your wishes down on paper. Services like Legal Zoom allows you to print out a living will form (based on your state) and you can fill one out that way. Your doctor’s office should also have some available.
Mistake: Not having any savings.
Having a savings account is incredibly important. You always need to be prepared with some money on the side in case of an emergency or some unexpected expenses popping up. Start off by aiming to save up an emergency fund of one month’s wages, regardless if you are currently in debt or not. That will automatically become your emergency fund. Spend time working on any debt you may have and once that is all paid off, start trying to save one year’s worth of expenses instead of one month. Make saving goals for yourself to keep you on track.
Mistake: Living paycheck to paycheck.
Bounce back: If you happen to overspend more than you should, this will be your biggest problem. When you live paycheck to paycheck, your lifestyle becomes way too fragile to maintain, and the stress of worrying whether you’ll make it by every month can become a major drain on you and your wellness. Again, this is where something like a spreadsheet can help you out by allowing you to figure out what expenses you might have on your plate right now that don’t necessarily need to be there. Do you see on your list of expenses that you’re currently paying for Netflix, Hulu, Starz, HBO and Showtime? Make cuts. Figure out which of the streaming services you use the most aim to cut out at least two. Then, tell yourself you’ll put the money from that aside into that savings account you’ll be opening. Find ways like this to cut expenses wherever possible and then saving that money instead of spending it. That way, should there be any hiccups your cash flow, you’ll be prepared with some backup funds to act as a cushion.