Number One: You’re saving too much

WHAT are you talking about? Before you write me off, hear me out. How do you look at your overall financial situation? Is the success determined by the amount in your savings account or by the overall net worth?

Net worth is your total amount of cash + investments minus your debt balances. Would you rather have $20,000 cash and have $100,000 in debt or have $4,000 cash savings and $10,000 in debt? I would choose option B every day. Here’s why: the moment you start looking at your Net Worth is the moment you start planning the rest of your life. Savings accounts are here-and-now. They’re too short-sighted of a measuring tool to help your future and can convince you that you are better off than you really are.

I propose that you pay off your credit cards instead of keeping the money stashed in your savings. Your future self will thank you. (Side note: if you are planning on a home purchase or need to save a security fund, I completely understand if you are stashing your cash).

If the choice is between putting $500 into your bank savings or paying off your credit card…you pay off your credit card every time. The total amount of cash you have will give you options but the total amount of debt you have will give you ZERO options.

Number 2: You’re not meal planning

Eating food at a restaurant, or take-out, is a luxury. It ends up costing you 2x-10x the amount it would take to cook yourself.

If you don’t plan your meals and have to get lunch out 2x a week and spend $10 every time (and that’s CHEAP) you will spend $1,040 per year on those meals. All because you did not plan your week.

Make a grocery list and stick to it. Buy food that can be replicated for other meals. Cook a little bit more and eat leftovers.

Number 3: You’re not tracking your spending

This one is boring, am I right? I relate this to stepping on the scale before you work out. It’s just not fun. It’s frustrating to look at how much we spend on food, housing, alcohol.

Personally, I like to track my spending in Personal Capital because the site focuses on my net worth and I like to have all my numbers in one spot. Similar budget tools are Mint and even Dave Ramsey’s Every Dollar.

If you aren’t doing this now, I suggest that you track every single dollar you spend over the next 3 months. Try not to over spend, but, also try not to be insanely thrifty. Just live life “in the middle” for 3 months and then analyze your monthly spending. After comparing the months against each other, come to a nice middle ground of your category spending: groceries; restaurants; etc. If you spend $500, $400 and $400 in those three months you could set a budget goal of $400 ,or, set an aggressive goal of $350 per month.

I couldn’t believe when I looked at the dollar amount households spend on groceries. Take a look for yourself but a “middle of the road” budget for a family of 4 is $191 per week which comes out to $827 per month. If I were that family, spending $191 per week, I would set a goal to spend only $150 per week to start off my budgeting. It’s a goal of reducing your spending by about 22%. Then adjust from there.

Number 4: You’re not saving the “extra” money you earn

If you have a side-hustle or ways of earning extra money you need to consider SAVING this extra money. For me, I have a Sales job where I make my commissions so my monthly income goes up and down. I also have a side-hustle that takes away about 10 hours per month and I make an average of $1,250/month.

I’ve done a terrible job at saving the side-hustle money and I’m telling you to learn from my mistakes. If I would have saved this income over the last 5 years (that’s when the income became stable) I would have $75,000 saved. Wow. My bad.

The temptation is to spend this money because it feels like “you never had it”. You know what I mean? Rewarding yourself for a job well done and buying that “thing” you really “needed”. Yeah. Don’t fall into that trap. What you really need is $75,000. Am I right?

Number 5: You’re not contributing to your 401k

I saved the most boring one for last, but check this out…

Recently I was speaking with someone (let’s call him, Jack) who has been at his job for eleven years and has $11,000 in his retirement account. His company is very generous and matches 50% up to 10%, meaning that for every dollar he puts into his 401k his company will put in fifty cents. They will do this up to 10% of his income.

Jack has made an average of $80,000 at his job the last 5 years. If he had put in 10% of his income every month he would have contributed a total of $40,000 into his 401k of his own money AND his employer would have matched with $20,000. After earning 6% (on average) that total 401k would have been at $69,824. He chose his path and only has $11,000. Whoops.

If you are not contributing to your 401k and your personal finance is in a “steady” situation you should consider making contributions. If your employer matches your 401k you should have started making contributions a long time ago.

*Some other quick notes. Jack chose to decline a raise. What I mean is that by not contributing to his 401k he turned down $4,000 a year from his company. Also, his taxable income was a lot higher so he paid the IRS more than he had to.

To wrap this thing up…these are 5 mistakes I see a lot of people make. I’m not perfect and neither are you but if we look at what the numbers tell us, we are a detriment to ourselves and our financial net worth. We are swayed all too often by our emotions and desires instead of “bucking up” and making the correct financial choice. Analyze the numbers for your self and see what kind of corrections you can make!