Financial responsibility is learned through trial and error and via the knowledge and mistakes of other people, which results in 67 percent of households making at least one terrible financial decision in their lives, and more than 45 percent of households making more than one financial mistake in their lives. I am part of the 45 percent. I have made three terrible financial mistakes in my life.
No Household Budget
Failing to create a comprehensive household budget is the number one mistake most individuals make, and I am 100 percent guilty of this mistake. I know creating and using a budget spreadsheet will allow me to better manage my finances. I’ll be able to objectively look at my income and expenses to determine if I am able to meet all of my financial obligations.
To create my budget, I need to look at all of my monthly income and all of my bills and expenses, including electricity, gas, car insurance, Internet, grocery bills and rent payment. I can use last month’s direct deposits to calculate my current and predict my future income. Once I finish my calculations, I will need to subtract all of my expenses from my income. If the bottom number is positive, I know that I am living within my means and have the potential to save money for emergencies and retirement. If the number is negative, I’ll know that I need to cut my bills and expenses and increase my income until I have a positive number.
Massive Student Loan Debt
My financial planning skills and understanding of student loans was non-existent in my 20s. I took out tens of thousands of dollars in student loans to pay for a bachelor’s degree and then a master’s degree. It was fast, easy money with a long-term repayment plan of 10 years.
If I had to do it over again, I would not take out as many student loans, and I would have worked a part-time job throughout college so that I could make payments against those loans while I was still in school. As it stands, I may never be able to pay my student loans off, but through a new repayment program offered by Sallie Mae and the federal government, I may be eligible for an income based repayment plan that would lower my monthly payment about and provide me with loan forgiveness after a certain number of years in the program.
Too Many Credit Cards
At one point in my early 20s, I had eight credit cards which amounted to more than $10,000 in available credit. I used those cards to buy groceries, gas and clothes and to pay housing and college expenses, which quickly maxed the credit limits on those cards. My monthly minimum payment amounts totaled $400 a month.
After several years of paying the minimum payments, occasionally missing payments and being unable to buy food or gas, my credit was destroyed. I knew I had to do something to take care of the outstanding debts, so I stopped making the payments, increased my income, saved money, and eventually called all my debtors to ask for debt settlements. Most of my creditors agreed to debt settlements, and I learned a valuable lesson: Never take out more credit than you can afford to pay back. These days, I have two credit cards, and I keep track of the account balances and payments through their online payment portals, and I make more than the minimum monthly payments each month.