Everybody makes their fair share of financial mistakes. It’s nothing to be ashamed of, but it’s definitely something you want to avoid whenever possible. If you can learn from other people’s money mistakes, as well as recognize and fix your own, you’re going to be a lot better off.
Ramit Sethi is a popular source of money advice. Lots of people talk about their finances with him, including on his podcast and his TV show, How to Get Rich on Netflix. When Sethi recently spoke with Men’s Health, he was asked what’s always a bad idea when it comes to money. He pointed out what he calls “one of the worst money decisions,” and it’s a big one.
Here’s one of the worst money decisions
Ramit Sethi says that “It’s always a bad idea to ignore your money.” He also mentioned a couple of common examples:
- Having credit card debt
- Not investing because you’re waiting for someday in the future
Now, Sethi seems to be referring to not being aware of what’s going on with your money and what you can do with it. So, to go into more detail with his quick example, having credit card debt doesn’t always mean you’re ignoring your money. If you’ve made a plan to pay back your credit card debt, then you could have a good handle on the situation.
But if you have no idea how long your debt will take to pay back, or how much it will cost you in interest charges, that’s a problem. You’ll most likely pay much more interest and be in debt far longer than you would’ve if you put together a repayment plan.
There are all kinds of reasons why some people stick their heads in the sand when it comes to their finances. Debt can be stressful, so you might prefer to avoid thinking about it as much as possible while you just make your minimum payments. Figuring out how to manage your money and invest it can feel complicated and even overwhelming, so saying “I’ll do it later” may be the easiest option.
Even though ignoring your finances is often what feels most comfortable, it can also keep you stuck in neutral. After all, you can’t figure out how to get better with money if it’s out of sight, out of mind.
How to get control of your money
If you’ve been ignoring your money, the best way to break the habit is to go over your current financial situation, including any stressful parts. That means your income, debts, and how much your biggest expenses (like your home, car, and food) cost.
Next, come up with one or two actionable steps you can take to improve your finances. Everyone’s situation is different, so this will vary from person to person. But here are a few examples that could help you come up with ideas:
- If you have any high-interest debt, such as credit card debit, prioritize paying it off. Use a credit card payoff calculator to see how long it will take with the monthly payments you’re making. Look for ways to increase your monthly payment amount to get out of debt faster and with less interest.
- If you aren’t investing yet, start investing 5% to 10% of your income. For the best results, do this automatically through a 401(k) or automatic investments through a brokerage account. If you’re already investing, see if you can raise the amount you invest by 1% to 2% of your income.
- If you don’t have much or any emergency savings, set aside money for that every month. Once again, you’ll likely get the best results by making this automatic. Set up automatic transfers from your checking account to your emergency fund.
Keep in mind that being more aware of your money doesn’t mean it needs to take up a ton of your time. In fact, it’s better if it doesn’t. That’s why it can be a good idea to take time-saving measures where you can, such as automating your investments and savings account contributions. It’s not about how much time you spend on your finances, but about knowing what’s going on and how you can continually improve them.
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