By Debra Pangestu
Having money problems is something a lot of us encounter during our 20’s when we’re learning how to navigate our newfound financial independence, but if we continue to make those common money mistakes by the time our 30’s roll around, we could be putting our financial future in jeopardy.
The older we get, the more financial responsibilities we have, and if we don’t start learning how to manage our finances properly, financial difficulties are bound to arise. If you want to avoid money worries in the future, here are some money mistakes to stop making in your 30’s.
1) Using Credit Rather than Cash
A credit card is something useful to have on hand, because apart from the rewards points and the convenience, you also have the security of knowing that should you ever lose your credit card, it can easily be replaced, which often isn’t the case with cash. However, the trade off with credit cards is that it’s easier to overspend, which can lead to debt problems in the future.
Studies have shown that people who pay with credit cards spend more than when they use cash. After all, it’s a lot more convenient, not to mention a lot less painful, to swipe or tap your credit card instead of counting out bills and watching them disappear from your wallet.
With the convenience of a credit card, it’s easy for people to buy things they don’t necessarily need at prices they can’t afford. And if someone doesn’t pay off their credit card balances every month, not only will they accumulate debt with high interest charges, but this could eventually hurt their credit rating as well.
The solution? Learn to shop with cash, but keep a credit card for those big purchases you know you can pay off. By sticking to cash, you won’t find yourself relying on credit and you’ll protect yourself from impulse buying, which are two actions that can ease the slide into debt.
2) Only Making the Minimum Credit Card Payments
Using a credit card regularly can help us build a credit history, but if we’re not using credit wisely, we can find ourselves in a position where we can’t pay off our credit card balance every month. Although making a minimum payment is better than making no payment, if this cycle continues you could be in for some serious consequences.
The most obvious consequence of only paying the minimum is the interest piling up on the unpaid balance. With interest rates ranging from 15% - 25%, it can take you years to clear your debt and you can end up paying thousands of dollars in interest alone. For example, let’s say you have a $10,000 balance on your credit card, which has a 19% annual interest rate. If you only make the minimum payment, it’ll take you around 37 years to pay off your balance and during those 37 years you’ll pay around $19,000 in interest.
Making only the minimum payment for a prolonged period of time could also affect your credit score. If you continue to use the card and only make the minimum payment, the accruing charges and interest will keep your balance growing every month, and this in turn will hurt your credit score as you use up the majority of your credit limit.
If you want your credit score to stay in good shape, credit experts recommend not using more than 50% of your credit limit. The best way to do this is to ensure you either pay off your credit card balance or pay more than the minimum every month.
If you’re struggling to make more than the minimum payment on your credit cards, rest assured you’re not alone. Non-profit Credit Counsellors are available across Canada to help you put together a plan to make sure that you can repay your credit card debt quickly, afford to live, and take care of your other financial commitments. Once you’ve successfully paid off your credit card debt, make it a habit to rely on cash and to use your card less often.
3) Living Beyond Your Means
Mainstream society is bombarded with images and videos of people living extravagant lifestyles, and now more than ever, many consumers are trying their best to keep up with the Joneses. These days it’s often possible to create the perception of living a cushy lifestyle, complete with a big house, fancy car and expensive vacations. With credit easily available, it may seem harmless to take out a loan to pay for a holiday, or to purchase expensive new toys on a credit card. That is, until the bills start to come in.
Living beyond our means is a money mistake a lot of us have made -- and continue to make – because we often don’t realize we’ve overextended ourselves until it’s too late. If we’re not earning enough to fully cover our expenses, our lifestyle will catch up with us sooner or later, resulting in financial problems. And, if most of your income is going towards servicing your debts, you likely won’t be able to save for your retirement, or for emergencies, which we’ll discuss a bit further down.
Living within your means is an essential money management skill that will help you sidestep debt. Not only does it free you from money worries, but it also gives you the freedom to make choices in the future based on your desires instead of based on what you can afford. If you’re ready to start living within your means, start adopting some frugal habits. It’s easier than you think!
Related: If you’ve been living beyond your means and want to know how to get out of debt, click here to learn how.
4) Not Following a Budget
One of the biggest money mistakes people make is failing to make and follow a budget. Without a realistic budget, you’re more likely to spend – and live – beyond your means because you won’t know how much you can realistically afford for rent, car payments, groceries, and other expenses. Even if you’ve worked it out and know how much you can afford, expenses always add up and typically exceed whatever we plan to spend. If you don’t follow a budget, your debt is likely to grow and may quite possibly result in money troubles in the future.
Most people choose not to budget because they think it entails limitations and depriving yourself of things you enjoy. But in fact, a budget is a tool that will help you avoid all those things! In a nutshell, a budget is nothing more than a spending plan that maps out what your expenses are for the month, and how much you can allocate for each expense. This way, you get a clear picture of whether you’re living within your means and spending in a way that will help you get ahead in the future.
A budget shows you, in black and white, how much your living expenses are in relation to your income. If you discover that you’re spending well beyond your means, a budget will show you which areas you can cut back on so you can make changes and take control of your finances.
Making a budgeting is a lot easier than it sounds. Here are some steps to help you put together a realistic budget, and if you’re ready to start plugging in some numbers to see what you’re working with, you can download a free budgeting calculator here.
5) Not Saving for Retirement
You may be working and earning an income now, but there will come a time when you’ll no longer be able to work – and it may come sooner than you think. A recent survey of 2,000 retired Canadians revealed that almost 50% retired sooner than they planned due to circumstances beyond their control.So when the time comes for you to retire, will you still be able to support yourself financially?
When you’re young and you’ve just started out on your career, saving for retirement may be the last thing on your mind, when in fact doing so is just one of many money mistakes to avoid. It’s tempting to spend your hard earned money on things you can enjoy now, but in another 30 years or so, all those vacations you took and those expensive restaurant meals you enjoyed aren’t going to help you pay the bills when you’re retired.
Although you should certainly treat yourself to things that bring you joy, it’s equally important to set aside some money for the future. If you start contributing to a retirement fund now, you’ll have another 30 years to let compound interest work in your favour. If your company offers a retirement matching plan, take advantage of it and make sure you contribute the maximum amount. It’s basically free money! If your company doesn’t offer a retirement plan, you can still start one on your own. Simply set up automatic contributions on each pay day (about 10% of your paycheque, if you can manage it) to a separate account. By automating these contributions, you’ll get used to them and hardly even notice the money is missing from your chequing account, and you won’t be tempted to spend it. If you happen to get a salary increase down the road, don’t forget to ratchet up your retirement contributions, too.
By saving for your retirement now, you’ll have enough money to ensure your Golden Years truly are golden.
6) Not Saving for Emergencies
Did you know?
Instead of saving their own money for emergencies, many people use their credit cards as a safety net. But what they don’t realize until it’s too late is that this safety net doesn’t allow you to bounce back like your savings does. If you are injured at work, laid off, have your hours cut, or have a health problem and are off work for a while, you will require a larger salary when you return to work to maintain your lifestyle plus repay your safety net credit card debt within a few years.
Avoid this common painful experience. Create your own safety net with your own money. Start by saving up $1,000 for an emergency fund, then increase this to enough money to live off of for 1-3 months, and then build up savings for your retirement.
When it comes to emergencies and unexpected expenses, one thing is for certain: they will happen. A leaky roof or burst pipe can flood a room, your vehicle may break down and need expensive repairs, or your spouse may come down with an illness that results in expensive medical bills. If you’re not prepared to handle these unexpected expenses, you can find yourself getting deeper in debt.If your income is just enough to meet all your expenses, when an emergency strikes you’ll likely end up borrowing money from family and friends, neglecting your existing payment obligations, or putting everyday purchases on a high-interest credit card, all of which will get you in debt. And it’s for this reason that saving an emergency fund is so important.
When you’re in a financial crunch, an emergency fund will give you a cushion to fall back on until you get back on your feet, so you won’t have to rely on credit to make ends meet. It can be hard to squeeze out a few dollars each payday to funnel into an emergency savings account, especially if you’re barely able to make ends meet. And if you find yourself in this situation now, building an emergency savings should be a priority: if you can barely look after your expenses now, an emergency can really devastate you financially.
The best way to start saving an emergency fund is to start small. Allocate a certain amount each payday into a separate savings account, and treat it as you would a bill: budget for it, and diligently make a payment into the account with every paycheque. Whether you’re contributing $5 or $50 each time doesn’t matter, what does matter is that you’re building up a financial safety net to get you through tough times.
7) Avoiding the “Money Talk” With Your Significant Other
Money can be a difficult topic of discussion, especially between your spouse or your soon-to-be-spouse. But, when your partner’s financial decisions impact your life and vice versa, it’s important that the both of you take some time to discuss money and finances early on in the relationship.
Money is one of the most common causes of tension between couples, and if you and your partner can get on the same page, or at the very least get a better understanding of each other’s money habits and financial triggers, you can avoid fighting about money in the future. Having this discussion accomplishes two things. First, it determines whether you and your partner are on the same page when it comes to money and lifestyle, and if you aren’t, you’ll have the opportunity to discuss whether a common ground can be reached. Second, once you have a clearer idea of your partner’s financial goals – and they have clearer idea of yours – both of you will be able to make better financial choices to achieve those goals together.
Having this talk is especially important if you decide to get married, because whether you like it or not, your financial futures become linked once you get married. And, if both of you don’t come to an understanding of each other’s financial habits and money matters, it can put a strain on your marriage, affect your child’s future, and in some cases, it may even trigger a breakdown in your relationship.
If you’re nervous about bringing up the “M” word with your partner, here are some tips to help you discuss common money mistakes couples often make, and how you can fix them without fighting. You can also ask a relationship counselor, a financial planner, or even a representative from your church to act as an objective mediator during the discussion.
8) Keeping Your Budget “As Is” When Your Financial Situation Changes
When we’re in our 30’s, our income rarely stays the same; we switch jobs, get a raise, take on a side hustle, and in some cases, we can also lose a job. When our income goes through these changes it’s important that we change our spending and adjust our budgets accordingly to make sure we’re continuing to live within our means.
For example, if you’re earning more income -- whether it’s through a pay bump or an additional stream of income – consider putting more money towards your emergency and savings account instead of taking out a loan for a flashier new car. You should certainly enjoy your hard-earned money and treat yourself to something nice every now and then, but it’s also important to set some money aside in case your circumstances change in the future.
Given the fluctuating economy, job-layoffs have become more common, and if this happens to you, it’s important that you make significant changes sooner rather than later so you don’t rely on credit to make ends meet. Go through your budget and see where you can cut back. See if you can make do without dining out, the expensive cell phone contract, and the yearly gym membership, just until you get back on your feet.
When you’re in a period of transition – in between jobs, starting a family, going back to school – it’s equally important that you refrain from taking on long-term financial commitments. Commitments like cell phone contracts, vehicle leases, and gym memberships tie us down to financial obligations we may not be able to afford in a few months. During transition periods we often don’t know what our financial situation will be like in 3, 6 or 12 months down the road, so until our financial circumstances stabilize somewhat, it’s best to avoid signing on to long-term financial commitments.
9) Trying to Solve Problems with Money
Where to Find Really Good Help for Debt or Financial Problems
If you’ve been going through some financial challenges, have a lot of debt, and need help getting your finances back on track, contact a local non-profit credit counselling organization near you. They can help you look at all your options and put together a plan to resolve your issues and get your finances back on the right track.
Money can certainly buy us nice things, but it won’t solve all of life’s problems, and if we continue to subscribe to the idea that “money can buy happiness,” we’ll be in for a lifetime of debt. When we’re under stress or faced with some sort of problem, sometimes we’ll indulge in a little retail therapy to feel better. Although buying something can make us feel good, that feeling is only temporary.
Instead of hitting the shops – or logging on to your favourite online shopping site – when you’re feeling sad, stressed or upset, there are other things you can do to lift your mood without spending a lot of money. Put on your jacket and go out for a walk in nature, call a friend, or put on your favourite movie. If the problems you’re facing go a bit deeper than the occasional blues or work-related stress, consider talking to a professional who is trained in these matters. Remember, your mental and emotional health is just as important as your financial health.
When It Comes to Managing Money, Practice Makes Progress
Managing money can be tricky, especially when you’re fresh out of school and learning how to navigate your way through starting a new job, paying off student loans, and taking on new financial responsibilities. As you start learning the financial ropes, you’re bound to make some mistakes along the way. That’s how we learn!
While our 20’s are about self-discovery and learning, the money mistakes in your 20’s shouldn’t be repeated when you reach your 30’s. Our 30’s are time to get serious about our finances and to make sure we’re facing any debt problems and financial difficulties head on. If want to get a head start on creating a financially free future, it’s time to stop making those common money mistakes.