As part of my weekend reading recently, I found this article by Gail Vaz-Oxlade about 9 money mistakes. I thought I would take Gail’s quiz and here are my results.
- Carrying a balance on credit cards or on a line of credit.
We don’t carry a balance on our credit cards. We did however dip into our HELOC for a home renovation. That HELOC will be paid back in a few months.
- Letting expenses get out of control.
We review expenses every year to see what we’re paying (i.e., insurance, internet, cell phone, other). These things will go up over time but they do not exceed our income.
- Taking payday loans.
I have never taken one and don’t intend to.
- Having no emergency fund.
We have a small emergency fund but not six months in cash, what some financial experts deem is appropriate. For most working families that would likely mean at least $40k in cash. I arrived at that number based on average household expenditure so maybe it could be lower, closer to $25k to cover expenses for six months. Regardless I highly doubt most experts have $25k in cash-on-hand in case of an emergency.
- Buying a house that’s too expensive.
We probably did that 5 years ago, I dunno. I know if we stayed in the house we were in it would have been paid off this year actually; we upgraded instead. We love the home we’re in but it will take us another 5-7 years to slay the mortgage dragon.
- Paying only the minimum amount on debt.
As part of our financial plan for 2016, we’ll attempt to double-up our mortgage payments along with our investing goals. It’s an aggressive goal but I think we can do it. Over the last five years we’ve taken advantage of our mortgage pre-payment privileges (and low mortgage rates) to cut our mortgage almost in half.
- Using debt to repay debt.
We don’t use cash advances on credit cards to repay debt.
- Not saving for retirement.
We already know what Gail wrote in her article: “If you think social security will be enough for retirement, imagine what your life will be like if you retire with only $20,000 a year to live on.” Based on our current spending patterns $20,000 in income per year is not nearly enough to cover our expenses, this is why we save for our future every month. For one financial goal this is where we’re at.
- Not having a budget.
I disagree with Gail, not every living soul needs a formal budget. Gail wrote: “I don’t care who said you didn’t need a budget they were a) uninformed, b) hoping you’d pick up the tab c) lying to you.” The people that need a budget the most are folks that do not know if their income covers their expenses. In our house we tend to forecast expenses every other week. I suppose that’s a form of budgeting. I suspect people who are financially free might have some budget but it’s not formalized. These smart individuals have known all along income (including income used to pay yourself first) must be > expenses.
Based on my tally we avoided many of these mishaps above but definitely not all of them.
How many major money mistakes have you made?