4 Financial Mistakes That Limit Your Freedom

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Whether you are at home, at work, or out with friends, there's no escaping financial stress. It's the kind of stress that stays with you until you do something about it. It takes over your life. You end up spending a lot of time thinking about your finances which causes you to be unproductive in other areas… and not present in life. It limits your freedom. (See also: The 7 Worst Money Mistakes Married People Make)

Let's take a look at some of the specific mistakes that you may be making that add stress and frustration and limit your time and enjoyment!

Making Excess Purchases on Your Credit Card

This can also fall under a category called "careless spending."

At first glance, credit cards may seem to provide you with a sense of financial freedom. Suddenly, you can spend up to your credit limit without actually having the money to pay for it. You can put those new jeans, after work drinks, and a vacation to Hawaii on your card without any short term repercussions… freedom!

The reality is that once you rack up this debt, you are forced to begin paying it back the next month. And if you don't, it will impact your credit score, and in turn, your ability to borrow money in the future (and maybe even your chances of getting a new job!). Even with cards that offer 0% APR for the first 12-18 months, you must pay a minimum amount each month to keep that rate. Although you may initially be able to make a purchase on a whim, the cash needed to pay down the debt each month (plus any interest) will eat away at your income until you pay it off.

Paying Too Much in Rent (or Owning a Place You Can't Afford)

One of the biggest mistakes people make is paying too much for housing. The rule of thumb is that renters and homeowners alike should not pay more than 30% of gross income in housing costs. Whether you own or rent, the money comes out of your cash flow each month, reducing the amount of extra money you have to spend on other activities. Yes, it is great to live in a place with all the bells and whistles available to you, yet how much value are you actually deriving from such benefits? Would money spent elsewhere reduce your stress and increase your freedom?

Guessing How Much Your Expenses Are Each Month

One of the most common answers I receive from clients when I ask how much they spend each month starts like this, "I think I spend…" That's simply a guess. And, when it comes to your spending, guessing will only decrease your freedom in the long run. Imagine asking a hotel how much a room is per night and them responding that they "think" it is $300. After staying for two nights you find out that it was actually $500. You're now paying $400 more than you thought. It doesn't work in this situation and it doesn't work with your monthly cash flow. (See also: 10 Sites That Help You Track Your Spending)

Dreaming About Everything and Planning for Nothing

We all like to dream about what it would be like to live a more eventful and enjoyable life. It's fun! However, when was the last time you heard about someone dreaming their way to financial freedom? It just doesn't happen. Without some kind of a plan, you will never achieve the success you are dreaming about today.

3 Quick Solutions

Some of the above items have obvious solutions, but overall it's about bringing intention to your finances. This means that you should take steps to organize yourself. Even if you take just one step at a time, you will be progressing toward a place that may provide you freedom over your finances.

Limit Your Credit Card Use

When it comes to credit cards, never purchase something you can't afford to buy now. At the very least, you should be able to pay for it in the next two or three months. This will minimize the interest you pay and also support a lower credit score. This is "bad debt," so get rid of it quickly.

Be Responsible With Your Housing Costs

Take a hard look at your monthly mortgage or rent payment. Do you feel like you can afford it without limiting other areas of your life? If not, does living there provide you with enough value to sacrifice other freedoms? There is no right answer, but I highly recommend evaluating your circumstances. What would it be like to save $300-$400 a month on rent? What could you do with that money that would provide you with more freedom than you have today?

Write It Down

Whether we are talking about your monthly cash flow or your plans for the future, putting real information down on paper makes all the difference. A simple Internet search will provide you with various ways to track your expenses. You can start by using a service like Mint.com. As for your goals, they aren't real until you announce them to the world. Write them down, share them with your family and friends… create an accountability partner. (See also: Do This One Thing Every Day to Defeat Out-of-Control Spending)

What would it be like if you knew your financial status, at least in a general sense, rather than having to guess all the time. Guessing about your finances creates anxiety… and there are enough other things in the world that can cause that!

Have you found a way to free yourself from financial stress? How? Please share in comments!

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