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Big Money Mistakes You May Be Making

Big Money Mistakes You May Be MakingWe’ve all made money mistakes. I don’t think anyone has ever said “I’ve never made a money mistake in my life.” If so, I’d like to meet that person! :)

Even if you have made money mistakes, it’s never too late to change your life around. Below are a few money mistakes that you may be making:

 

Taking Out Too Much in Student Loans.

I’m guilty of this one. Luckily my student loans are now paid off, but I would have had thousands of dollars less if I wouldn’t have taken so much out when I was in college.

My problem was that I would always take the full amount out each time. With student loans, the money goes towards your tuition, but whatever is left over is just deposited into your bank account as cash.

I never really thought about how taking an extra $1,000 or $2,000 each semester would hurt me, but it did!

 

Thinking You’re Too Good To Save Money.

When I had my day job, I used to always bring my lunch. There were two reasons for this: a) I wanted to save money; and b) in order for me to get lunch it would have meant that I would need to get in my car and actually go somewhere (I was too lazy for that).

Occasionally, I was made fun of for some of the things I would do to save money. Some thought I couldn’t afford to eat and I even had people offer to buy me lunch.

This also applies to coupons. I know so many people who think that they will be looked down upon for using coupons. I just don’t understand that. WHO CARES IF YOU USE A COUPON?

Anyone can save money, and there should be no shame in doing so.

 

Not Thinking About The Full Cost.

I have seen this many times. You buy an item without thinking about the full cost of it – you only look at the sticker price. You may be able to afford the sticker price, but can you afford the whole thing?

Many things have additional costs:

  • If you buy a house, other costs include home insurance, property taxes, utility bills, repairs, and so on.
  • If you buy a car, other costs include car insurance, gas, maintenance, taxes for buying the car, yearly personal property taxes, and so on.

 

Spending More Money Than You Make.

If you are spending more money each month than you make, then you are making a money mistake. You need to figure out what is going on so that you can fix this problem.

Are you trying to keep up with the Joneses? Are you not making enough money each month to support basic life necessities? Do you have too much debt?

Whether you are spending $100 over your budget each month or $1,000, you need to fix this money mistake.

You can start fixing this money mistake by creating a budget. You need to list your income and realistic expenses and see where your problem is.

 

Buying Things Because You Think You Deserve It.

Don’t get me wrong, I think that money is meant to be enjoyed. However, if you are going into thousands of dollars of credit card debt because you think that you deserve to own things, then you may have a spending problem.

Something that you may want to think about is why you think you deserve things. Is it because another person can afford it so you think you should be able to as well? Or, is it because you want to buy things to cure a bad mood?

Also, does buying things actually make you happier? Or does it just lead to you buying even more things?

 

What money mistakes have you made or seen?

 

Do You Spend $12,000 Each Year To Look Good?

Do You Spend $12,000 Each Year To Look Good?The other day I came across an article that said men and women spend around $15,000 in their lifetime to look good.

At first that amount of money seemed like a lot, but when I really thought about it, $15,000 really did not seem like enough at all.

When you include, beauty products, hair cuts, spa treatments, clothing and so on, the number is probably much higher than $15,000 in your whole entire life.

In fact, I came across another article that said the number is actually around $12,000 per YEAR (according to Siren Magazine). $12,000 a year sounds like way too much to me though.

$12,000 a year would be around a third of what the average person makes a year. Maybe people are using personal loans such as from Yes Loans to fund their beauty expenses?

Here is how much I estimate that I spend each year:

  • Beauty products (lotions, makeup, brushes, nail polish, etc.) – $250
  • “Normal” items (toothpaste, toothbrushes, razors, etc.) – $75
  • Haircuts and coloring – $250
  • Fitness – I’m not really sure how to estimate this since we just bought a home gym. The ongoing cost is $0 though since everything is paid for.
  • Clothing and shoes – $1,500.

 

That makes my grand total of how much I spend each year to look good at $2,075. The number is a lot less though if I don’t include my estimate for clothing spending.

I used to spend a lot more to “look good,” but I now do many things to lower the amount that I spend. Below are different ways for you to lower the amount that you spend:

 

Go for the natural look.

If you want to save the most money, then staying your natural self will most likely save you the most amount of money. For example, if I wanted to be blonde, that’s going to cost more than if I stayed with my natural brown color because of the upkeep that would be required.

The same goes for if you want to tan, you want to wear makeup, and so on.

Also, if you decide to go completely natural and go without makeup, beauty products, or clothing, your cost would be $0 each year! Haha, that wouldn’t work for most though because clothing is pretty much a necessity for life… :)

 

Find an awesome hair stylist that is in your price range.

I have been going to the same girl for over a year now, and no one can beat her prices. I refer all my friends to her because she is affordable and always does a great job. A cut and color is usually less than $65 if I use her, which is better than what most of my friends pay for their stylists (usually $150+).

It does help that I don’t do much with my hair, I usually only color it variations of dark red and/or brown. I’m not gutsy enough to do much else!

 

Take surveys and/or mystery secret shop.

This is something that I used to do all the time so I could save money on my beauty spending. There were many beauty mystery/secret shops available when I used to mystery shop.

I would sign up for mystery shops for products that I already used (such as Estee Lauder). This way I would get the product for free, and I would also get paid something around $10 to do the shop. It was great and definitely a win-win for me.

 

Try makeup dupes.

I am not the type of person to spend $500 on face lotion. I am also not the type of person to spend $100 on face lotion. There are plenty of makeup dupes out there that can save you money.

A makeup dupe is when there is a cheaper version of an expensive product that almost works the exact same. Here is an article from Buzzfeed that lists 9 makeup dupes.

 

How much do you spend each year to look good?

What do you do to lower your costs?

 

P.S. Lets try to not get into the politics of it all about why people feel the need to spend money on beauty. If you can afford spending money on beauty, then I see no problem with that. People can spend their money on what they want. Also, many people feel more confident when they look good, which is great. Many people also enjoy clothing and makeup, so no need to judge others about that also :)

 

Do You Value Items In Terms Of Hours Worked?

Do You Value Items In Terms Of Hours Worked?Hello everyone! I have an article to share with you today from a fellow blogger. If you are a new reader, please read my about page and my latest online income report - $12,100 in March Business Income.

When I first started taking more interest in personal finance, the learning was very theoretical. I used it all: personal finance blogs, money websites, podcasts, mainstream financial media, books, magazines, etc. Everything I read taught me something new.

All of my learning came down to two main ideas:

  • Save more money
  • Invest that money at a higher rate of return

 

For the second part, I was provided with many practical techniques to increase my return. Whether in investments in property, shares, or many other asset classes, I discovered many ways to improve my ROI by 1% or 2%. I understood the massive impact that a 1% improvement could have. All good stuff, but something was missing.

What I was lacking was actionable advice related to saving more money. I knew from my research that it was integral to reduce spending. However, the advice which followed was either overly generic, or overly specific:

  • Stop spending as much => too generic
  • Make your own laundry detergent to save $1 a month => too  specific
  • Pay yourself first => too generic
  • How to save money on potatoes in the supermarket => too specific

 

Therefore, I would like to share with you three simple tips that I actually use to reduce spending on things that I don’t actually NEED. You can start using all of these tips right now, and they apply to all forms of spending.

 

Tip #1: Value items in terms of hours worked

The first cheat I use is to understand the cost of spending (and earning) in terms of how long I will have to work based on my current wage to afford a certain item. For example, let’s imagine that you are considering going out for a meal tonight, which will cost you £40. How many hours do you need to work to pay for this meal?

 

1.1 Calculate your hourly take home pay

Your annual wage is currently £26,500.

The first part of this technique is to calculate your hourly take home pay. You may get paid hourly, which makes this easier. If you get paid annually, then you will have to calculate this figure.

For example, perhaps you contribute 5% to an employer pension and you are repaying your student loan.

Your annual take home pay is therefore approximately £18,230.

Assuming we work 230 days in the year, which is approximately the average in the UK, and we work 8 hours per working day (probably an underestimate for most), t our hourly wage is £10 per hour.

You only have to work this out each time that your salary or working hours change.

 

1.2 How many hours do you have to work to pay for the item

This is the easy part. Simply divide the cost by the hourly wage.

The result:

Before: £40 for the meal, why not?

After: £40 for the meal. I’m not working 4 whole hours (an entire morning at work) to pay for that meal. Get the oven on!!

Voilà, £40 saved!

 

Tip #2: Future pricing strategy

In my opinion, the second strategy is slightly more complicated, but  even more effective.

The idea is to calculate the cost of something now not at its current price, but instead at its future cost.

Let’s use the meal example again.  Again, we have two choices.

  • Spend £40 on the fancy meal now
  • Not eat out, and instead add £40 to my long-term investments

 

2.1 Calculate your investment returns

I want the calculation to be easy to perform on the spot. Therefore, I use the rule of 72.

-The rule of 72 says that if you divide your annual interest rate into 72, this is the number of years it will take to double your money.

Based on the historical returns of financial markets, I’m going to assume that I can earn 9% on my investments. If we then consider average inflation of 4% in the long-term, we would obtain a 5% net return.

Therefore, I calculate 72 / 5 to determine that it will take approximately 14 to double my money.

 

2.2 Work out the number years until a significant date in the future

The most commonly used date (and the data I would suggest using) is a retirement date. I currently use the period between now and my state retirement age (which I estimate will be 70 years old when I reach retirement). Personally, this is 42 years.

I will, therefore, double my money three times before retirement. So, £1 invested today with double three times when I retire – £1 x 2 x 2 x 2 = £8.

 

2.3 Work out your future cost

When I calculate the cost of something now in future terms, based on my prior calculation, I need to multiply its cost now by 8 (2 x 2 x 2).

Instead of the fancy meal costing £40, the true future cost of that meal is £320!

Suddenly, I’m not so keen to go out tonight!

I said in the title that I used this technique when I wrote this post. Whilst writing this post, I was tempted by some expenditure. We were thinking about ordering a take away curry. It was Sunday night, I was pretty tired, I was VERY hungry. It had seemed that the stars had aligned. I went online and the takeaway special was £25. Not too bad. However, when I then applied this strategy and remembered that this was costing my future self £200, I couldn’t justify spending £200 on a takeaway.

If you use this on every purchase, you suddenly stop spending money on everything other than those things that you really need.

 

Tip #3: The “30 day” rule

This strategy is slightly more common, but it is incredibly effective.

For any major expenditure (my limit is £30), I will not allow myself to purchase an item immediately. Instead, I always wait 30 days.

 

3.1 Write down your items on a list

Keep one single list. Each time you want to buy something major (whether it is home improvement, a new TV or some new clothing), write it down on the list with 3 things:

  • The name and description of the product
  • The cost
  • The date at which you wanted the product

So, today, I wrote down “New shoes – £40 – 24/02/2014” on the list.

 

3.2 Choose one thing from your list

Then, after 30 days, if you still really want the item, then buy it. No more instant gratification. You will save money and you will appreciate the product that you have bought so much more.

 

3.3 Reset your list

This is the part of this technique that I use, that I have never seen written elsewhere. You may have noticed that in 3.1, I said “keep one single list”. This is because I add everything I want onto one single list. Then, when I am about to buy something, I have to choose the item which has been on the list for over 30 days, and I cross everything else off.

I then restart my list.

Therefore, I buy the new shoes, but I don’t buy the ipad and new coat that are also on the list. I decided that the shoes were the most important purchase and the others will have to wait.

I then start a new list and add the ipad back on (but not the coat as I have decided that I don’t really need it after all).

This part of the technique stops me writing down everything I want and giving myself the permission to buy everything 30 days after I have written it down.

 

I hope these methods help you. Let me know what you think of these methods?  Do you already use any of them? What other methods do you use to help you restrict discretionary spending?

 

This article was written by Graham from moneystepper.com.

Moneystepper provides advice on taking small steps every day, which have a much bigger impact over the long-term. Daily posts cover every aspect of money, investing, saving, real estate, taxes & the economy: everything you need to increase your net wealth in the short, medium and long term.

 

 

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