There are so many avoidable, common money mishaps out there, I had to write another blog post about them! (In case you missed part 1, here are three easy-to-fix money mistakes I see people making all the time.) If you’re more of a listener than a reader, I cover this same content in episode four of my podcast.
2 MORE Common Money Mistakes & How To Overcome Them
1. Putting off saving for the future out of a fear of needing the money sooner
Did you know that you can withdraw your Roth IRA contributions at any time without having to pay taxes or penalties? Because a lot of people, once they digest that little fact, find it a LOT easier to put their extra savings into that account because they know that it will be better for their financial picture, but emotionally they’re JUST NOT READY.
Of course, it’s important to understand that you have to leave the GROWTH of that money in your Roth IRA til you’re 59 ½. - unless you meet certain exceptions like buying your first house. But when you’re first getting started saving and you maybe don’t have a fully-funded emergency account, rather than forgo the sometimes-fleeting opportunity to put money into a Roth IRA, which gives you TAX FREE investment income in the future, why not at least put that money in there, even if you don’t invest it, while you build up the rest of your financial foundation outside?
I wish I’d known this when I was 25 and trying to optimize my money. By the time I realized all the cool bells and whistles of a Roth IRA, it was too late for me to put anything into it because I was married and our combined income was over the limits for contributing to Roth accounts. And yes, there is the back-door Roth for those of you who are savvy money people, but if you’re savvy enough to know what a back-door Roth is, then you’ll also understand that I had already rolled several 401ks into rollover traditional IRAs so a back-door Roth was not a tax-free strategy like it is for people who don’t have traditional IRAs. And if all of this sounds confusing but you’re intrigued, hit me up! I’d love to walk you through all of this in a coaching session.
2. Making debt payments willy nilly
When someone feels like they are drowning in debt, it’s easy to get overwhelmed and make payments towards various accounts without being strategic.
I would recommend that anyone who’s juggling various debts start by making a list of all the money they owe and then sorting it either by interest rate or balance. Then systematically pay off the highest one first with extra funds while making minimum payments on all the rest. So what’s the fix here? Real talk: first you have to find a way to stop taking on new debt. Commit to a month of ramen or put yourself on an Amazon ban or whatever you need to do to stop the bleeding. The other big mistake I see is people thinking they can pay off debt while still using credit cards or other borrowing instruments like Venmo loans or afterpay.
Friend, you gotta stop. I’m not saying you can’t go back to using your Delta Amex to rack up SkyMiles some day, but until some new habits are in place, it’s cash or debit only.
Then you need to MAKE A PLAN that includes creating a small pot of savings to help you through tough times and setting your payments on auto-pilot. Ideally, you’d also work to refinance your debt to the lowest interest rate possible, then you just commit to making the same total payment toward your debt till it’s entirely gone.
Not till the first account is paid – till it’s all gone. That’s the essence of the debt avalanche or the debt snowball or whatever winter-invoking term you want.
Getting a plan in place helps ensure that each payment has the highest impact possible. It also helps you focus less on the debt itself on a day-to-day basis, which can be an energetic drag. You’ll have a debt-free date too, which can help you stick with the plan!
I expand on all this in episode four of my podcast - listen here!