Over the 12 years in working with clients, I've observed a lot of money mistakes so I thought that I would outline 5 of the most common mistakes I see that can cause a family to go into debt.
1. No sinking funds:
If you are new to my world, then this might be a new concept for you. Creating a monthly expense for a known one time expense in the future -- eg. saving monthly for Christmas presents.
I have over 19 sinking funds set up that range in value from $7 (yearly Costco membership) to much larger expenses like $550 (property taxes). Some of these include a house and car maintenance fund, as well as birthdays for my husband and kids and their sports and activities. By creating these "funds" and saving the money, allows me so much flexibility when an item pops up out of nowhere....like needing $2300 of repairs to my paid off, no warranty left car. Which leads me to my next debt trap...
2. No emergency fund:
Not having an emergency fund can almost guarantee that unless you have a lot of disposable income available, you will need to use debt...likely credit...to deal with it. I'm talking about the BIG stuff that can happen. You blow a tire on the highway that costs $500 for a tow and repair. You have a leaky roof that has now just set you back $5000-10,000. You just lost your job and your income just stopped. The TRUE emergencies. My suggestion is to build to $1000, then pay off all debt (excluding your mortgage) and then work on increasing your emergency fund to 3-6 months living expenses.
3. Unconscious spending:
This is an area I see all the time. "I have no idea where my money went" and its no wonder - with electronic payments and technology we can buy things easier than ever before. Heck, I can even buy groceries using my Apple watch if I have forgotten my wallet at home. Couple that with poor mental math, meaning we aren't accurately keeping track of the little transactions that happen daily, and we have unconsciously spent our money, and usually by swiping the plastic.
4. Credit card rewards
This debt trap is very common. Chasing reward points using cards with high annual fees and high interest rates is only beneficial if you are paying off your card in full every month. What happens though, is you can get distracted by the 'shiny things' all in the name of points or cashback rewards. There is a way to play this game, but unfortunately many don't know how to use this properly and find themselves racking up debt as they chase the rewards.
5. Budget isn't realistic
And the last debt trap really has to do with trying to make a budget work because you want it to, not because it actually does. What I mean by that is having a very unrealistic amount in certain categories just to balance the budget. If you think you can live off of $50/week on groceries but you are in PRACTICE spending $200/wk to feed your family of four, it doesn't matter how much you want it to be $50, its unrealistic and you can't stick to it. This leads to covering the extra expense with debt and feeling crappy that you couldn't "stick to your budget".
Listen, these traps are very COMMON so if you fall into one (or many) of the categories I've listed, just know you are not alone. But also know you can fix it!
My Fix Your Finances Course is open for Registration...and we do exactly that...fix the money leaks, eliminate the debt traps, protect your income today, save for the future AND tackle your debt. Yes, it is ALL possible.
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Yours in Financial Health,