I’ve been in finance for over ten years (wow - how did that happen?) and I’m basically never not talking to people about money. It is a common thread in our society. Our dependence on it unifies us, while our competition for it can be dividing.  

It makes sense that once people find out that, all day long, I sit around thinking about people and their money; there are always questions. So. Many. Questions. At almost every dinner, in friendly exchanges with my local barista or in frantic and panicked text messages from friends - there’s no shortage of money woes.

Throughout my informal, unscientific and ongoing study of people and their finances, I’ve uncovered some common mistakes I often hear people making.

 

Mistake No. 5: Not Having Any Short-Term Savings

Short-term savings is an emergency fund and/or a buffer in your checking account. It can be harsh to label not having savings as a mistake because some people have been dealt challenging life circumstances, so their lack of savings isn’t entirely because of their lack of virtue.

But for those who are making a living wage and then some, I often see folks putting too much money into retirement and not having enough cash for the short-term. Another more common mistake I’ve encountered are creative freelancers with lumpy cash flow, where some months they make a big pile of cash and other months no cash at all. When the big pile comes, they use it to pay down the credit cards they were using during slower months, without putting anything into savings. This sets them up for having to rely on them again when there’s a slow month.

The solution to this is a very annoying solution. It’s the answer your friend who lost a bunch of weight gives you and you hate them for saying those words to you. Diet and exercise. Diet, meaning, reduce unnecessary expenses for a short-term so you have excess cash. And exercise, go through and do the exercise of making a budget so you can understand from where and how you can reallocate your income. It sucks, I know.

 

Mistake No. 4 Budgeting Based on Your Imagination and Not Reality

Speaking of budgets… The most common budgeting mistake I see is making a budget based purely on imagination and not fact-checking with reality.

Yes, a budget is aspirational. And yes, you should use your imagination when it comes to what you want your life and your future to look like. So I’m not saying don’t imagine - I’m not a monster - I’m saying that you need to look back at how you’ve spent your money in the past to help guide you on creating a budget for the future. It’s hard to guess if you haven’t looked at what you’ve spent.

I’ve sat in hours and hours of budget meetings with clients whose historical budgets I’ve personally created. And then I ask  them what they think they’ve spent each month in categories like clothing or Amazon or drugs. And sometimes they’re in the ballpark and sometimes they’re way off.

It’s important to get in the range of reality because otherwise, you’re misallocating and you’re working your ass off, but you’re doing it based on misinformation.

 

Mistake No. 3 Mistaking the Noise for the Signal (Worrying About the Wrong Things)

Here are the three things that people focus on intensely- like a dog mystified by its own tail, chasing it until exhaustion.

Credit score obsession. Yes, your credit score is important because it impacts whether you can borrow money and how much it will cost you. And yes it often plays a role when it comes to employment and getting housing. So I feel you, make sure you check in on it every quarter. But don’t obsess.

Here’s how you can have a healthy credit score. Always pay your bills on time, but realize most lenders won’t report your delinquency until you’re 30 days past due.  So don’t freak out if you’ve paid a bill within the grace period. Try to keep the amount of balances you carry no more than 33% of the total amount of credit you have available. Do this for each individual credit card and for all your credit cards in total. This is called your credit utilization ratio. If you’re shopping for a loan, inquiries may impact your credit score, but not in a major way.

Individual investments. A lot people believe they should care about individual stocks and bonds. And if you’re gambling and having fun pretending to be a day trader, you can totally go down the rabbit hole. I won’t rob you of that joy.

But if you’re a regular sentient being who just wants to “do the right thing” when it comes to investments, you need to understand investing is more about the overall flavor of the dish (the amount of risk you’re taking on as a whole) and the only thing that has been reliable in terms of investment strategy is diversification.

Mutual funds and exchange-traded funds are investments with exposure to many different stocks and/or bonds. It’s a way to diversify, but to still target a certain amount of risk. (P.S. This isn’t investment advice).

Getting the right tools. You know that friend you have who wants to get into photography, but instead of just taking pictures with the camera he has, he thinks he needs a bunch of gear before he can start. Don’t get too bogged down researching budgeting apps or aggregator apps. 

 

Mistake No. 2 Leaving Money on the Table

If you’re an employee and your employer offers a retirement plan and offers to match any amount of your contribution and you don’t do this, you’re saying, “That’s a no for me, dog,” to free money.

People often leave money of the table mostly because they don’t know it’s being offered. So, if you have an employer and you don’t know whether or not they offer a retirement plan. Go to HR right meow and ask if one is offered and if you’re eligible to participate. Also ask if the company matches any of your contributions. And if the answer is yes, take that goddamn money off the goddamn table and give it to your future, cute, wrinkly, old self.

Another reason people leave money on the table is because it’s easy to put it off and say, “Oh, well, I’ll do it tomorrow.” But tomorrow can last five years and putting it off means you’re missing out on the money growing into more money.

If you’re leaving money on the table because you’re overwhelmed with having to “choose your investment options,” then the next sections is the gentle boot up your ass that you need.

 

Mistake No. 1 Being Afraid to Just Start

The world of finance - just like modern marketing - is constructed to make you feel inadequate, afraid, stupid and that if you make a mistake, you’ll ruin your life forever.

But the only way to get over this crippling, paralyzing fear is take action and just start where you are. Pick one thing to learn about - perhaps something that is timely and relevant to you at the moment and just go for it. Get a book from the library or frantically text your friend who works in finance. There has never been a time where so much information is available for free and you can do it all in pant-less comfort from your couch.

I believe in you.