7 Money Mistakes That Are Easy to Make (and How to Avoid Them)

– Hey, what is going on guys? So when it comes down to it this channel is kind of all about building your resources, right? I mean we have videos about building your cognitive abilities so you have the resources to take on tests and do challenging work, we have videos on improving your health so you have more energy on a daily basis. And we have videos talking
about a lot of tools that can help you be more productive and get a lot more work done. But one of the resources we
haven’t talked a lot about on this channel is your money. Which is kind of weird
because I actually spent the last three-and-a-half years co hosting a personal
finance podcast on the side and I am not too proud to admit that I have spent many a
Saturday night in the past staring at a financial spreadsheet. – Does this look dull to you? – So now that I have
lost all of my friends I’ve got time to break down seven really common financial mistakes that you’re gonna wanna
make sure you avoid if you want to start building
a solid financial base. Cue the llamas. (upbeat instrumental music) So our first common financial mistake here is failing to plan for
medium-term expenses. And by this I mean expenses
that are more than a month out but still coming up in
the sort of near future. Now if you’re like most people you’re probably very
well aware of the fact that you have to pay rent
at the end of the month. And you have many other
typical monthly expenses, you have to buy groceries
every single week and tomorrow you need to
go out as soon as possible and buy the Tim and Eric
Chrimbus Special DVD. You know this. But what you might not be as aware of is the fact that maybe
three months down the line you’ve got to buy textbooks
for your next semester. Or that a holiday’s coming
up and you have to buy gifts. A lot of people don’t think
about these medium-term expenses and that can get them into trouble. So this is why it’s important
to frequently look ahead and ask yourself the question, what is coming up in my life? I think of this as a mindfulness practice. Think about all of your
life’s dependencies and what you’re going to need to do in the medium-term future to make sure that they’re all going to continue to run smoothly
and that you’re prepared for any expenses that they might bring. Mistake number two is making
big financial decisions in your life without
running a what-if analysis. This basically means
that you take the data that applies to your
current financial life and then you ask what if? And you ask it using data. You ask what would happen if I say, bought a new car or got a new job? Or took a payout on my current job because I maybe want to
cut down to part-time hours so I can pursue a passion. A lot of people jump
into these big decisions without actually seeing
what they are going to do to the numbers that run
their financial life. Now for all my flaws and
all the dumb decisions that I make in my life, one thing that I am not
is one of these people because for the past couple of years I have been developing this
very complicated spreadsheet that basically runs my
entire financial life and allows me to easily
run these what-if analysis. Is it analysis? Analyses, analyses, yeah. Now what you’re gonna
see on the screen here probably looks a little bit complicated and you definitely don’t
have to build something this crazy, although I am
gonna have publicly available demo version of this spreadsheet in the description down below
if you wanna download it and start playing with it. But essentially I built this spreadsheet so I could put in all of my income sources and all of my typical monthly expenses. And then over on the left side I’ve got cells that add everything up, do subtractions, do division, addition, all those other math things and to tell essentially how much money is left over at the end of the month, how much I’m investing, how
much I’m spending on housing and all sorts of other useful things. Now to be honest I’ve gotten
pretty nerdy with this. I even have a second
page in this spreadsheet that has accurate federal tax brackets and state tax brackets so I can see what I’m going to be paying in taxes given the amount of income
I bring in during the year. And the best part of this is that I can if I want to make a change in my life, simulate that change before I
actually make it in reality. So whenever you are contemplating
a big financial change in your own life I would implore you to run a what-if analysis like this. Build a spreadsheet or at
least know in your head how much you probably
make on a monthly basis and how much you roughly
spend on a monthly basis and then do the simulation
in your head or on paper so you know what’s gonna happen
before it actually happens and you don’t get yourself in hot water. (upbeat instrumental music) Bit mistake number three and this can be a
potentially very big mistake is not having an emergency fund. A lot of people out there are so gung-ho about paying off their debt quickly or investing money in the stock market or other risky investments
that they don’t take the time to actually build a base
of cash that they can use if something goes wrong. So to give you a little insight on my personal finance philosophy I feel like your number one goal when trying to establish a financial base is ensuring that you can take a punch. What’s a punch? Well a punch is when
someone balls up their fist and they connect those
bones and tissue and skin with your face and then you get a bruise. But in metaphorical terms
a punch is really anything that sort of requires you
to pay a bunch of money that you weren’t expecting
in order to continue living your life the way
that you want to live it. And to make things really
simple the way that you ensure that you’re able to take a punch is by establishing an emergency fund. Having a base of cash
that you can tap into if you need it. Now a lot of people have asked me how much do you actually need
to have in an emergency fund? How much do you need to have
saved up in your checking, your savings account before you can start accelerating debt payments, or invest it? While I can’t give you exact numbers here because there are huge
cost-of-living differences all around the world and many
other variables to work with I do have a couple of ballpark numbers that I think are good
rules-of-thumb to start with. So goal number one in my
mind would be to establish an emergency fund of $500. Now to be clear this is
just a ballpark number that I think is a useful
figure to start with, but it may be different if you
live somewhere in the world that has a very different
cost-of-living index than say the average cost-of-living here in the United States. So if you want to find out
what a good equivalent number might be for where you live, you can actually go over
to a site called numbeo.com and run a cost of living comparison between two cities. For example here I’ve
run a comparison between Des Moines, Iowa which is my hometown and Prague. As you can see it cost 1.3 times as much to live in Des Moines, Iowa
as it would to live in Prague. Now these are definitely averaged numbers based on aggregata data so there are going to be
variations in real life but this is a good planning tool. Anyway, goal number two
after you have established that $500 emergency fund is
to figure out your number. What is your number? Well your number is your
minimum monthly expenses. So this means cutting out Netflix, cutting out Spotify, cutting out all the chocolate
you buy at the grocery store, yes this is projection. And figuring out how much do you need to basically maintain a
minimum standard of living where you’re actually living. So not getting kicked out of
your apartment or anything, but you know buying rice and beans, living in your apartment
and all that stuff. So maybe you look at your bank statement and you find out that last
month you spent $1,200 on all of your expenses. And you look through all the expenses, you cut out the ones
that seem non essential and you get down to a number of $800. So $800 a month is your
minimum monthly threshold. Goal number two is to build
up that amount of cash in your checking account at all times, which means after all monthly
expenses are taken care of that amount of cash should be left over in your bank account. You should never go below it. And finally goal number three
is simply the combination of goal number one and goal number two. Have a $500 emergency account somewhere, maybe a savings account and then have your minimum monthly expense as a cushion in your
main checking account. Only then should you start
accelerating debt payments and by accelerating I mean going beyond the monthly minimums or investing in maybe riskier investments like the stock market, mutual
funds, whatever it may be. – Bitconnect! – Alright, mistake number four is carrying a credit card balance. Now I have had a credit card
for about nine years now and I use it every single day, but I do not view my
credit card as credit. I don’t view it as borrowing money. I view my credit card as
simply an intermediary step between my bank account,
the money that I know I have and the purchases I want to make. This means that while
I do use my credit card for most everyday purchases, I make sure that I go
in every single month and I pay off the balance in full. And as a fail safe I also
have an auto payment setup so I know it’s always going to be paid. Now the reason that this is so important is that credit cards are
in general a very bad tool for borrowing money. I don’t think that the
concept of debt itself is inherently evil, but the way that credit cards do it can get you into trouble really fast because credit cards often
have a 20% interest rate or higher and if you start
building up a balance the compound interest from
that high interest rate can start to get you into a position where you can never dig your way out because the interest is accumulating faster than you can pay it down. So please raise your hand and swear to me that if you’re going to use a credit card, and I think that you should, always pay your balance off
at the end of the month, never carry one and never
pay a dime of interest to the credit card company. (upbeat instrumental music) Now our fifth mistake here is kind of the opposite side of the
coin from our last mistake and it is refusing to build credit at all. Some people out there are
just so fearful of debt they refuse to use credit cards outright. They refuse to take on
any debt whatsoever. They hate debt, but this can be a destructive mindset. Think about this
philosophically for a second. There’s this saying that goes, “No man is an island.” And it is more true today than
it ever has been in the past. To achieve almost any
of your big goals today requires participation in society and that participation
usually involves interactions between strangers. And like this or not
one of the primary ways that our society uses to
gauge the trustworthiness of strangers is to use
their credit history. Can you borrow money and
be trusted to pay it back? And many of the basic things in life use this as a trust indicator, whether it be something as big as getting a mortgage for a house or something as relatively simple as getting approved
for an apartment lease. I actually know people who’ve
applied to live at apartments and they have had more than enough money in their bank account
to pay for six months or even a year’s worth of
rent but have been rejected because they did not have
an adequate credit history. So as soon as you can
start looking for ways to intelligently build up credit. When I was 18 years old
I did this by getting a credit card with a $500 limit and just as I do now, I went in every single month and paid the balance off in full. And honestly if you do this
you don’t even have to use it for every single transaction. You don’t even have to carry it with you on a day-to-day basis and deal with the temptation to use it, you could lock it in a drawer and just set it pay something like your Netflix or Spotify bill. (upbeat instrumental music) Alright, mistake number six is
failing to invest your money or waiting far too long to do so. Albert Einstein once may
or may not have said that, “The most powerful force in the universe “is compound interest.” It’s kinda one of those quotes that has less than trustworthy sourcing, but it is true, compound
interest can work wonders for you if you get in on it early enough. So to answer two questions
related to investing, first and foremost where do you invest? This is one of the areas
where people get tripped up because there are so
many choices out there and they just simply
don’t know where to start so they get analysis paralysis. Now I am not a registered
financial advisor by any means and I don’t want to be the kind of person who’s telling you where to put your money so I will just tell you
what I have done myself. When I was a junior in
college I started an account with VanGuard and I started investing a small monthly amount with
them every single month and then later I complimented
that with an account over at betterment.com. And aside from those resources
there are many other places to invest your money out there. There are places like Fidelity, places like probably your
local credit union or bank. But the one thing that I’m
going to point out here is that you want to avoid high fees in whatever investment you choose, anything more than 1% is probably just a reason to avoid that investment. Beyond that there are
great books out there like I Will Teach You To Be Rich where you can learn more and we actually did an
entire episode on investing on our podcast so I’ll have
that in the description below and there are also websites
out there like Bogleheads which give really solid and I
think sane investing advice. So those might be good
places to check out. And that brings us to our second question that I get asked quite a bit
because I’m in the college and student space and that is should I pay
off all my student loans as fast as I possibly can or should I pay the minimums
and use all my excess cash to start investing early? Now this a nuanced question, I should probably make
an entire video on it but I’m going to give you
my abridged thoughts here. First and foremost the
answer to this question is going to be very dependent on how tolerant of holding debt you are. If you’re one of those people who is very emotionally
affected by having debt then you should probably pay that off as quickly as possible. That being said if you are
more tolerant of holding a little bit of debt then we can start to get a
little bit nerdier about this. So an investment is going to
have a certain rate of return, right, and your debt is going to have a certain interest rate. So if the rate of return
on investment is higher than the interest rate on your debt, then putting money towards that investment is going to make you a
little bit more money in the long run than if
you were to put more money towards the debt and not invest at all. There’s a spread between those two numbers and that’s where you can make more money. But the problem is that the rate of return on any investment out there is uncertain. That is the nature of investing, you have to take on
some risk to get reward. So because of that you have
to be slightly risk tolerant to use this strategy. Now if you invest in
something like an index fund which is just a simple investment that follows the stock market and you look at the historical returns of an investment like
that over the long-term then you get a rate of return around 7%. There’s a great blog post that I’ll link in the description down
below if you want to see the data behind that. Now you might be thinking 7% sounds great and my student loans are at 4%, so it’s clearly a good decision right? The one thing you have
to keep in mind here is that 7% figure is a long-term figure, sometimes the market may be way up and may return like 20% and some years, like 2008, you get a negative return, you could lose a bunch of money. So we’re talking about
long-term returns here and you have to be risk tolerant. And for that reason I think
that it is a good idea to have a little bit of a cushion between that 7% figure and your
interest rate on your debt. So here is my rule-of-thumb, for those of you who are
a little bit risk tolerant and want to maximize your returns as much as you possibly can. I say to pay off any debt that has a 5% or higher interest
rate as fast as possible. Don’t invest until you do this, of course get your emergency fund, but don’t invest in the stock market. But for any debt that is below 5%, just pay the minimums on that debt and take all the extra money you have at the end of the month and put that into a responsible investment like an index fund. (upbeat instrumental music) Alright we have arrived
at our final money mistake which is a bit more of a meta mistake than some of the other ones on this list, but I think it is still important. And the mistake is focusing
on immediate financial ROI, as in return on investment
in all of your decisions. What I mean by this is a
lot of people out there are focused on the money far too often. They chase the money and
they turn down opportunities that could result in a lot
of potential personal growth, career growth, relationship growth, because it doesn’t come
with a paycheck right now. So once you’ve established
that financial base, and this is important, once you’re able to take a punch, start thinking a little
bit more long-term. Start investing yourself, don’t chase money for too long and let your personal
development stagnate. And on a related note and
I have to mention this here make sure that the investments
you make in yourself aren’t only the result of spending money. And what I mean by that is
make sure that you’re investing time and effort into your
development as well as money because a lot of people out there think that just by buying productivity books or buying gym equipment
they are going to magically become stronger or more
productive or smarter. And that isn’t the case. When it comes to professional development there are really three different steps to you know any kind of improvement. There is the purchasing of new tools, which is the most fun part, the most novel part and the part that gives you the
biggest rush when you do it. But then there’s also the learning stage and the practice stage and both of these stages are harder, they’re not as fun as going
out and buying something but ultimately they’re more
rewarding and more important. Now earlier in the video we made a point about looking ahead and making sure that all of your life’s
dependencies are covered. And one area where people
often fail to do this is in their digital life, especially when it
comes to their security. I cannot tell you how many
times I’ve met a friend who’s using the same exact
password for their bank as they are for their Final
Fantasy VII Fan Fiction forum login. And that is a big problem, when you repeat passwords
you open yourself up to a lot of vulnerabilities and the potential of getting hacked and maybe even having your money stolen. So going forward make sure
that you are always using strong, unique passwords for every single online
account that you have. And an easy way to do this and keep it all managed and organized is by using a tool like Dashlane. Dashlane is a really
well-designed password manager that can easily generate,
strong, unique passwords for all of your online accounts. And it can also auto fill those passwords and login forms so you can
easily get into the websites that you use every single day and what’s even better, especially for me, it can automatically fill in
any other form online as well. This saves a ton of time and
eliminates a lot of friction in your everyday life. Dashlane can also store
things beyond just passwords. They can store secure notes for you and your payment information so you can pay for things
online really quickly and all of your information is stored in a patented security architecture that has incredibly strong encryption. So if you want to start
improving your online security in a very easy and convenient way then head on over to
dashlane.com/collegeinfogeek to give them a try for free today. And if you want to save
a little bit of money on their premium subscription which let’s you sync passwords
across all of your devices and securely share passwords
with trusted friends and family members then you can also use the promo code,
collegeinfogeek at checkout to get 10% off your order. I want to give a big thanks to Dashlane for sponsoring this episode and being a supporter of our show and as always guys thank
you so much for watching. If you enjoyed this video
definitely hit that Like button and if you don’t want to
miss out on future videos that come out every single
week then click right there to subscribe to this channel. You can also click right
there to get a free copy of my book on how to earn better grades or click right here to get one
more video on this channel. Thanks for watching and as always I will see you in the next video.

Paul Whisler


  1. I would much rather pay all my debt then invest. I could be using the money Im paying on debt to invest

  2. hey thomas… can you make a video on how to use Evernote effectively

  3. There's a problem with this video: after 17 minutes of learning fiscal responsibility I looked up Boosted and then immediately wanted to spend +$1000 on an electric skateboard.

    Seriously, though, these were some great points I hadn't come across before. Good job avoiding making yet another every-piece-of-advice-about-money-management post like what you usually find out there.

  4. I heard that the emergency fund should be 3 times your monthly wage 🙂

  5. HELLO EVERYONE!!!!!! I know this is random, but I really messed myself up this summer with debt. I made a gofundme account to try and see if I can figure things out. Please consider taking a look at it. You don't even have to donate if you don't want to. Just consider sharing it on Facebook with friends and family and I would really appreciate it. I am so embarrassed that I can't even share it to people I know on Facebook. This is the best way I could think of getting it shared around for now. Here is a link to my profile. Thank you so much for looking at it. https://www.gofundme.com/fxsh3g

  6. Hey.. am I the only person who thinks that he kinda looks like Liam Payne ?? 😂😂😂 LoL .. #loveyaThomas#Bestvids 🙌🏼

  7. Hi ! Just wondering, would Dashlane be better than Lastpass ? 🙂 Thanks a lot for this video, I am looking for a job right now to be financially independant from my parents, and those tips about managing money are great ! 😀

  8. Feel like it's worth mentioning that even with paying off your credit card balance in full, you also don't want to use the full line of credit every month.
    I've read that high credit utilization isn't great for your credit score. So if you have a card with a $500 limit, you might want to keep your spending on it under $165 (or 33%) and use a debit card for everything else.

  9. Hey man, any existing or future video on how to achieve highest progress rate?? provided the subject (being me) is willing to put max. effort 😛 (As I currently am but my rank isn't decreasing fast enough)

  10. Great video! Greetings from Prague btw 😀 housing here isn't rly cheap, so don't expect some low-cost living…

  11. Another amazing content, Thomas! How do you even manage to make these up! (Y)

  12. I agree with you Frank, awareness of our cash-flow (especially expenses) using data is a great way to start understanding one's financial health.

  13. https://www.numbeo.com/cost-of-living
    Cost of living Quezon City, Philippines from this site is almost real. Great tool indeed. (y)

  14. Agree on the debt topic, there are 2 kinds of debt – a good and bad.
    Good debt helped you manage your cash flow and increase your earning capacity like loans used for rental apartments or for replenishing inventory. Robert Kiyosaki see this as debt acquiring asset.
    Bad debt are spent usually on expenses like gadgets and splurging in unnecessary spending.

    Agree, credit card is the easiest way to build credit history.

  15. @Thomas Frank, is Prague your next travel destination or dream retirement location?

  16. Always like to watch you! You are so smart and knowledgeble!!! Love your tips!

  17. LOVE this video. Not just your generic ‘save 10%, save for a down payment’ very helpful tips. Thanks!

  18. If someone wants to improve their financial situation forever I Highely recommend a book called Total money make over. I've learnt some great things from it.

  19. If you live away from family I would suggest making your emergency fund be able to cover the cost of a plane ticket there and back. In Canada that is more than five hundred dollars depending on where you live and what time of year tragedy strikes.

  20. this video helped me finally make a budget that looks like a budget and has the potential to operate as one and i feel less pathetic and more hopeful now so thanks you're really great at what you do

  21. Hi I would like to ask for tip on any good app where I can handle (I mean write down, plan and track) medium term expenses. Exactly as Thomas mention in video I have o lot of expenses which occur once a year or half-year etc. I am looking for application where I can input this expenses with information till which date, how much $, if it is reccuring and it will show me that every month I have to put aside this amount of $. Right now I have my own excel spreadsheet but it is not as comfortable and automated as it could be in some app. Thaks in advance for any tips.

  22. Probably my favourite video on your channel! And I've been following the channel for a few years now! Congrats!

  23. I spent a lot of what I've earned the first times I got paid. After three months, I started wanting less things, and started saving. I got a pretty good amount. But I don't think it's enough for what I want to do medium term

  24. hey thomas!! i live in west des moines and would love the chance to meet you! you truly inspire me and maybe message me

  25. Regarding the point on investing your money, yes I agree that you should factor in that the 7% return is long term – but you also need to keep in mind that the 7% is pre-tax. I'm not from the States, but where I'm from that 7% would turn into ~5% after tax. The income component taxed up front, the capital component taxed when the investment is sold. Something to keep in mind.

  26. This is easily one of the most concise yet pragmatic videos I've seen on managing personal finances. Very well done, and no fluff. Thanks.

  27. Hey Thomas, awesome video! What whould I do considering I live in europe (netherlands) though?

  28. Time spent watching your videos is time spent doing something productive!
    Thank you so much for your valuable insights Thomas. You are a true gem for a generation filled with thorns! Absolutely love your work.

  29. Its immoral to use a credit card instead of a debit card. Your credit card company charges the vendor a fee, every time you use it. So you are helping the credit card steal.

  30. Its immoral to use a credit card instead of a debit card. Your credit card company charges the vendor a fee, every time you use it. So you are helping the credit card steal.

  31. Can't wait until I'm done with my degree so I can finally have enough money to do any of these things… haha
    I live in one of the most expensive places in the world, and unfortunately the student loans don't cover the expenses of ANY student. Unless you live with your parents. Which I don't.

  32. I like your ideas, but not the credit card one so much, I think many people sleep walk in to being a month in arrears on their everyday purchases. I would think differently if people held the forth coming month cash in there current account then used the credit card, but I am quite certain most people don't leaving them selves exposed or as Warren Buffett would say you can see who is skinny dipping when the tide goes out. I hope that makes sense. Or to put it another way, if you need your wage to pay the credit card at the end of the month, you are a month in arrears…

  33. Budget, don't spend more than you make, and avoid debt! Don't use a credit card, use a debit card.

  34. WOW click on the "like bottom" before watching the video it's a habit to me… Anyone else?

  35. Literally Dave Ramsey's book is all you need. He gives you specifics that Thomas is talking about, especially about and Emergency Fund and how to have a budget. It's really cheap and is a very useful tool. Highly recommend

  36. So what he named are all USA based investing websites. Are there any investing websites for Europe as well? Particularly one that would include Latvia.

  37. Step 1. Stop buying drugs (Weed included)
    Step 2. Stop buying cigarettes. (Vape included)
    Step 3. Stop buying alcohol.
    Step 4. Move out of overrated states (New York/California etc)

  38. Drug myself through some really rough years, and finally came out the other side. Now, I'm above American median, investing, taking charge of my finances, becoming physically fit again, and recommitting to learning Korean.

    As I became more motivated I began to recall your videos that I had seen when I was in the middle of my slump, and had to come back to kickstart some of my own more labored efforts. I know you're busy, and probably won't see this, but thanks dude.

  39. Thank you, great budget spreadsheet!! And the video of course as always)

  40. Can't get your spreadsheet to open. Oops – never mind – I got it. Thanks.

  41. I was about to go check out my cost living diffrence ..but then you literally typed in my home city xd

  42. I use Google's inbuilt password Manager to create and save password. I also use major system ( 1= t, 2= n ) for creating password

  43. 1. Not considering medium-term expenses

    2. Not Considering "What if" scenarios

    ○ Build a Digital budget model so you can make simulations

    3. Ensure a financial base

    a. Goal 1: Establish a base of $500

    b. Goal 2: Figure out your number/minimum expense (Numbeo is a good website to find costs of living in different countries)

    c. Goal 3: Have, Money=Goal 1 + Goal 2

    4. Always pay your credit balance off and never pay a dime of interest

    5. Refusing to build up credit

    6. Failing to invest your money or waiting too long to

    a. Avoid High fees

    b. For risk tolerants:

    i. Pay off any debt with a >5% interest rate as fast as possible. Don't invest until you do this.

    ii. For any debt below 5% interest, just pay minimums and invest the excess.

    7. Focusing on immediate ROI for all of your financial decisions

  44. When I first started my emergency fund, the goal was the total of every deductible at once

  45. I subscribed because of that fantastic spreadsheet thank you for sharing! Also, the sums exported to Excel perfectly nice one!

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