Last week, keen groundhogs saw their own shadows on Groundhog Day, so tradition says we’ll face six more weeks of winter weather. If only we had a Financial Frank or similarly clairvoyant critter to help us take a cold, hard look at the shadowy spots in our finances — because there’s no financial spring in our future if we keep making the same money management mistakes over and over again. Just like you shouldn’t mistake a marmot for a groundhog, you shouldn’t make the same old, tired mistakes with your money.
1. Running without an emergency fund. You’ve always got your credit card if an unexpected car repair or health problem comes along, right? Not so fast. Slapping a big, fat emergency expense onto a credit card means payments — and payments mean you’re paying more for your crisis than you should be. Build an emergency fund of three to six months’ income to fall back on when the unexpected comes knocking.
2. Living paycheck to paycheck. If you find yourself scraping the bottom of the barrel at the end of every pay period, you need a budget. No, a budget won’t magically make more money appear in your account — but knowing how much money is coming in and where and when it’s going out will help keep matters reliably on track. Your goal: no surprises.
3. Spending money because you “deserve” it. So-called retail therapy feels so good at the moment, but the aftermath means a pit full of bills you’ll be mired in for months or years to come. It’s okay to treat yourself if you can afford it — as long as that means cash up front after your other responsibilities are taken care of.
4. Basing your self-worth on your material possessions. This money mistake is tied to point #3. Can you feel good about yourself without driving a luxurious car or carrying a designer handbag? If the stuff of your life is made of things you’re struggling to pay for, it’s less a sign of your success than a miserable millstone around your neck.
5. Living on borrowed money. Here’s the financial mistake that keeps on giving (or is that “taking”?): a lifestyle built on monthly payments. When you buy on credit, you never really own anything, and your money flies out of your wallet as soon as it comes in simply to keep pace with payments for all the things you’ve charged. Paying cash is the only way to get out of this hole. Lesson learned: The pleasure gained from lifestyle items like cars rarely lasts as long as the debt does.