Over the years, I’ve learned quite a few hard lessons on how not to manage own finances. I’ve learned them so well that I could teach a master class in “ways to ruin your finances.” There are plenty out there who have been in worse situations, but I know the techniques to utterly destroy your credit and financial situation.
Follow along if you want to know how to crater your finances!
Wait… no! Follow along if you want to read what mistakes to avoid.
1) Don’t track your finances.
I’ll keep playing this record, because not knowing where I stood financially is what put me behind the 8-ball financially. I would spend and spend with no mind as to the balance in my account. I’d often guess or think I had a general idea of how much I had, spend the money, and then realize later that I over-drafted and cost myself another $30 or more in fees. I also didn’t read statements or bills that were coming in, so I’d have no idea how much I owed. Hey, if you’re gonna screw up your finances, go big or go home!
The quick fix: If you’re in as rough a spot as I was, I’d start tracking finances down to the penny. Use something free like Google docs, or try some of the various free budgeting services out in the market.
2) Don’t pay your bills.
Because I didn’t track my finances or read my statements, I often had no idea when bills were due so I’d end up paying them late or missing them completely.
Of course, that’s not the worst of it. I’d take this to another level by electing to purchase something before/instead of paying a bill, or going out for drinks and losing track of how much I spent on food and alcohol because I was too tipsy. Inevitably, I would not account for some incoming transactions or fees, and just end up under an avalanche of bills and fees that buried me in more debt. Fun times for all!
The quick fix: This seems pretty obvious. Pay your bills before you start spending on entertainment, eating out, buying consumer goods, or otherwise being dumb with your money. Also, maybe set a limit on how much you’ll drink or bring cash if you’re going out for drinks.
3) Don’t pay yourself first.
This is one that continues to bite me in the rear, as I’ll never get back the compounding interest that I didn’t take advantage of a decade ago. You’ve seen those charts that demonstrate how much money can be made with 40 years of compounding, right? Now chop off 10+ years and see what the total is.
Because I never budgeted for savings, I missed many years of growth for my money and am now having to work harder to get half as far.
The quick fix: While I can’t get back the lost money, I can prioritize paying myself by setting up automatic investment transactions on payday. Do it before you know it’s even gone.
Or set it and forget it if you prefer. You get what I mean.
4) Buy a timeshare (or any low utility depreciating asset).
We bought our timeshare in the early 2000’s on a trip to Las Vegas, lured in by the offer of a free steak dinner. We were in “vacation-mode”, being happy and agreeable due to having a great time. The sales pitch adds to the atmosphere and they made buying very easy. I mean, they blew noisemakers and released balloons when we agreed.
I’m no fan of depreciating assets, but this one takes the cake for worthless assets that we’ve purchased. At least cars can get us from one place to another; timeshares are generally worthless except for whatever minor use you can get out of them. In my case, that’s no use at all, as I’ve never visited it. Why would I, when I could go to affordable and awesome hotels on the Strip?
The icing on the cake is that we never took advantage of that steak dinner.
The quick fix: Apply a very critical eye before spending money on a depreciating asset, as this will take you further away from any financial goals you have. Unless the item is very useful and will likely last awhile without costing a lot of additional money in maintenance/upkeep, maybe you should walk away.
Sadly, these mistakes are pretty common and relatable in your 20’s. Your case might be different, but I can say that for each of these choices, I only had myself to blame. I can’t go back and change them and am still paying for these mistakes now, but I can take action to not repeat them. I can also hope that at least one of you out there will read this and avoid having to learn these same lessons that got me starting negative.