4 Ways You May Be Unknowingly Sabotaging Your Financial Future

The following post is by MPFJ staff writer, Laurie Blank.  Laurie is a wife, mother to 4 and homesteader who blogs about personal finance, self-sufficiency and life in general over at The Frugal Farmer. Part witty, part introspective and part silly, her goal in blogging is to help others find their way to financial freedom and to a simpler, more peaceful life.

One of the reasons my family and I got into $60k-plus of consumer debt at one point is because we were sabotaging ourselves and didn’t realize it. You see, our massive consumer debt didn’t occur due to fancy vacations and designer clothing purchases.

No, it was all nickel and dime stuff. Frequent trips to the local mediocre buffet restaurants. Stops at the big box snack bar. Random Target runs. Years and years of mindless spending got us tens of thousands of dollars into credit card debt.

What’s worse is that we’d blown through a good portion of our retirement savings too. We’d pay off the credit card debt by taking 401k withdrawals, only to rack it back up again.

We assumed we simply didn’t make enough money to cover our expenses. But the truth was that we didn’t realize we were sabotaging our financial life all on our own with little, hidden mistakes.

Now that we know, things are wonderfully on track. The consumer debt is almost all gone and we’ve got healthy savings and retirement balances. And the turnaround happened because of a few secret money management tips.

All we did is discover the ways we were sabotaging our finances unknowingly. Once we had the cause, we began working on a cure.

Here are 4 ways we were sabotaging our financial future without realizing it. Are you shortchanging your financial future by making the same mistakes?

You’re Not Tracking Your Spending

If you only take one piece of advice from this post, let it be that you start tracking your spending. On the day I sat down and realized how massive our debt balances were, I made a plan.

I decided to go back one year and see where we’d spent all of our money. Using our bank and credit card statements, I tracked expenses in four areas:

• Eating out and entertainment
• Groceries
• Gasoline and car expenses
• Miscellaneous spending

The results were shocking, but they made it crystal clear why we’d gotten into so much debt. In every single expense area, we were spending up to twice what we’d budgeted.

You see, although we’d made a monthly budget, we never tracked our spending to ensure we were following it. Instead, we just put how much we assumed we were spending in the budget categories. And you know what they say about people who assume.

I encourage you to track your expenses for just one month. See where your money is going. This will allow you to nip overspending in the bud and put your money where you actually want it to go.

You’re Not Automating Savings and Retirement

Most people who fail at finances don’t bother saving any money until they see what’s left over at the end of the month. The problem with this strategy (or lack of it) is that there’s almost never any money left over to save.

The way to combat this problem is to treat your savings and retirement accounts like bills. Have 401k withdrawals come right out of your check so that you don’t even see them.

And pay yourself first by setting up auto-withdrawals from checking to savings. Then commit to not touching your savings account unless it’s for a designated purpose.

You Don’t Have an Emergency Fund or Designated Savings Funds

So many people dismiss the idea of having an emergency fund. The same goes for having designated savings funds for specific future expenses. The danger not having these types of accounts is that when these large or unexpected expenses come, they’ll leave you with no other choice than to borrow to cover them.

On the other hand, if you set aside money to cover these types of expenses you’ll have the cash to pay for them. Some of the things people use an emergency or designated savings fund for include:

• 3 to 6 months’ worth of income to cover a job loss
• Replacement of an automobile
• Large home expense repairs, such as a new furnace or new roof
• Large, unexpected medical expenses
• Car repair and maintenance costs

By designating savings accounts for specific types of emergencies or replacement costs, you put yourself in a position to pay cash for them and avoid having to take on credit card debt.

You Haven’t Stopped Caring What Other People Think

So many people make spending choices based on fear of losing the approval of others. It’s easy to do: we live in a society where advertising works to convince us that owning certain items and doing certain things makes us successful.

An odd thing happened when we sold our home in suburbia and moved out to the country. You see, no one out here really gives a hoot what other people own or do. They just……don’t.

This was an odd change for us, coming from a city where everyone was watching what you drove, lived in and did for fun.

But it taught us that our financial security is more important than the approval of others. And that lesson helped us to be okay with driving a 12-year-old car as we work to become debt free.

Because the truth of the matter is that while we’re obligated to provide financial security for our family, we’re not obligated to gain the approval of others. What a freeing revelation that was!

Conclusions

If your financial picture doesn’t quite look how you want it to, don’t worry; you can change it! Make a plan to follow the four steps above if you’re not doing so already.

Then put additional steps to work as needed to achieve your financial goals. You’ll eventually reach your personal finance destination.

***Photo courtesy of https://www.flickr.com/photos/axelhartmann/4452250878/in/