How You’re Wasting Your Money

If you’re like most Americans, you’re feeling a little low on cash. The majority of Americans don’t have enough money saved to cover a $1,000 emergency. And that money isn’t necessarily locked into a 401(k), either: A shocking 40 percent of Americans are not saving for retirement at all.

Some of this has to do with income inequality, but not all of us can blame the bigger picture for our economic woes. Plenty of people live paycheck to paycheck on salaries that should be enough to save on. Perhaps you are one of them. If you are, it’s fair to ask: Where did all the money go?

To save money and build a long-term financial plan, you’ll need to take a good hard look at your expenses and create a personal budget. Now is the time to figure out how you’re wasting money. Here are a few things that might be part of the problem.

You're Not Thinking Ahead

If you're not paying into a 401k to support you through your retirement you should at least be looking into IRA Investing. Both an IRA and 401k account can help you save money towards your retirement, but what is the difference? Whilst a 401k is offered through your employers an IRA is a savings account you can open yourself through a bank or broker. Employees typically pay a percentage of their salary into their 401k, and their employers may offer to match the contributions up to an agreed amount. Whereas, IRAs don't match contributions as you the individual have made the account yourself. However, they may offer their own tax advantages such as deferred tax until the funds are withdrawn. It is worth looking to pay into both of these accounts if you are able, as inflation increases it is worth investing in your retirement sooner rather than later.

You’re a part of the “throwaway society”

We have a tendency these days to throw out old things and buy new ones. It wasn’t always this way. Years ago, people were much more likely to repair things as diverse as appliances and denim jeans than they were to buy new versions. But cheap goods and our throwaway society — a term for our love for disposable goods and convenient waste — have changed the equation.

At the same time, we’re buying expensive things. Your iPhone is not cheap. Yet many of us will live with a broken screen for a while and then just buy a new iPhone rather than repair an iPhone and keep using it. That can be a big waste of money, because an older iPhone can be just as usable as a new one if you bring it to the right repair shop.

You’re taking on short-term debt

Sometimes, debt can help you build your wealth. But, in most cases, debt is something that makes you poorer. That’s because loans need to be paid back with interest, which means you’ll be shelling out more than you get when you take out a loan.

That’s why you need to avoid many forms of debt, especially toxic short-term debt such as credit card debt and payday loans. These high-interest debt will really mess up your finances, and the interest on such debt will be a huge waste of your money.

You’re paying rent

Sometimes, paying rent is the right move. If you’re not planning to stay in the area for the long term, if you don’t have enough cash saved up for a down payment, or if something else causes the math to work out in favor of renting, you’re all set — just keep cutting that check (and remember to live within your means).

But if you’re in a more typical situation, explain experts who offer mortgage services, you may want to consider buying your home. Buying a home typically involves taking out a mortgage; you’ll make a big down payment and then pay into your mortgage monthly.

Unlike rent, however, your monthly mortgage payments go into an asset that you own and could later sell for a higher price. And even if you keep your home forever, you’ll save money by eventually finishing the mortgage payments and owning your house outright.

This is hardly an exhaustive list of ways that you’re wasting your money. Ask yourself tough questions to find others. Consider optional expenses such as dinners out, fancy shoes, and more; but don’t forget about the “necessary” expenses that you make necessary with your own mistakes, such as the interest on debt that we talked about earlier. Diagnose your own spending problems, craft a budget, and start saving.