4 Huge Mistakes I Made That You Don't Have To

Everyone makes mistakes. Small mistakes. Giant, colossal, f-up mistakes. Sometimes we make financial mistakes. Today we’re going to talk about some of the terrible mistakes I made that eventually led me to facing the music, getting my sh*t together, and cleaning up my finances. Also, starting this blog. Let’s go!

Carrying a balance to build credit

I’m not sure where or when it started, but there is a malicious rumor in the world that carrying a credit card balance month-to-month helps you build your credit rating. It is unequivocally false that doing so builds your credit. In fact, carrying a balance and paying interest charges can actually hurt your credit!

It’s true that if you have a credit card and you use it each month you’re using up a portion of the credit available to you. A strong history of doing so and paying it back consistently indicates to lenders that you’re responsible with your money and will pay them back if they lend you some of theirs. That positively impacts your credit. However, carrying a balance month-to-month that incurs interest fees and late charges is not necessary to accomplish this. Simply using your credit card and paying it off in full each month, never needing to accrue any expenses, is all you need to safely and cheaply build your credit. If you instead carry your balance month-to-month in an effort to build your credit you’re actually paying Visa (or MasterCard or Discover…) a fee to DAMAGE your credit score each month. Don’t fall for this trap!

Carrying a credit card balance month to month is expensive and can only hurt your credit score.

Saving for retirement “some day”

Well out of college and approaching my 30s I knew I should start saving for retirement. And I knew I would someday. But by waiting to save until someday I put off setting aside money and failed to harness the most powerful force in the universe. When I finally started putting money into my Roth IRA a few years of potential market gains and compounding had passed. I managed to stop myself before I lost $1,000,000 but you don’t have to repeat my mistakes.

No matter how old you are right now, what your future holds, or where you’re at financially you can start saving for the future today. Not sure how you can possibly afford to do so? Make sure you’re taking advantage of the most powerful financial tool in the world (it’s free), and absolutely slay the lifestyle creep monster. Here are a few areas you may be able to save expenses from to put towards retirement. Even saving just $100 each month can compound into thousands in savings over time. I was wrong to wait to start saving for retirement and it cost me thousands; you don’t have to repeat my mistake!

Overspending on credit

This is a huge problem for most of us, and I’m not impervious to over spending with my credit card. The psychology behind this over-spending is well studied; it’s why casinos, cruises, and resorts want you to pay with a plastic club card instead of actual cash. When humans see how much money they’re physically spending, they’re likely to spend less.

For me in college my credit card was a good place to get money whenever I wanted to buy lunch out with friends or otherwise put off studying. For the average American a credit card means holding $14,000 in debt they wouldn’t otherwise need to have spent. The potential cost of that debt? Thousands a year in interest and a debt yoke that can feel mentally draining.

To rid myself of my over spending problem in college I simply cut up my credit card and saved to pay it off. If you’ve got standing credit card debt, consider putting your credit card on ice (sometimes literally; freezing it in your freezer prevents you from getting fast access to it) and paying with cash. Pay off the credit card debt by making your repayment into a game or use the most powerful debt repayment method in the world.

What to do for paying for the things you need to purchase while your credit card is “frozen”? For me I had to switch to the cash method. That could mean a system that involves keeping an envelope of cash for each expenditure you have in a month ($400 for groceries, $200 for gas, etc.) and pulling the cash out to pay for things. Out of cash in an envelope? Then you’re done buying that item for that month. That worked for me so that I could get my spending under control. Seeing the cash going out kept me honest about how much I wanted to spend and empowered me to stick with my budget.

Paying too much in taxes

I consider it a patriotic duty to pay taxes, but it’s also my responsibility to ensure I only pay the taxes I owe. For years I paid far more than I needed by not taking advantage of all the different savings programs, tax credits, and tax deductions available to me. That was costly! When you spend dollars on consumer goods or wasteful spending instead of tax-advantaged savings options you’re throwing away money to the government that they want you to keep! Don’t fall for that trap!

Instead, when you’re done with your budget each month take the extra money you have left and contribute to your 401(k), which reduces the taxes you pay this year. Make sure to fully fund your Health Savings Account (HSA), which can reduce your taxes forever and is the most powerful retirement account. Consider saving in a traditional IRA, which cuts your taxes down this year, or a Roth IRA which cuts your taxes down after you retire.

The government wants you to cut your taxes in so many ways, one (hypothetical) family of three managed to drop their tax burden on $100,000 in income all the way to just $11! It’s our patriotic responsibility to pay the taxes we owe, but the government wants that amount to be as low as possible!

Don’t follow in my footsteps!

It was a long, hard journey to get to a point in my life where I felt comfortable enough to talk about the mistakes I’ve made with money and how you can avoid them. You don’t have to repeat my mistakes! Don’t do what I did with the items I’ve laid out here today and save yourself time, headaches, and most importantly a whole lot of cash.

Photo "illustration" by Willard Pierce