The best way to learn from money mistakes is from someone else's mistakes. Thankfully, I'm passing on these lessons from mistakes I've seen or read about.
If you make a wrong decision with your money it can take months or years to solve all of the issues that come with that choice.
That's why I think it's important that people should avoid these four mistakes:
Don't take on debt for anything unless it can help you make money or save money
Having the ability to take out a loan doesn't mean you should. Banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) want to lend you money.
But I only think it's worth taking out a loan if you can get an even greater economic benefit than the cost of the interest of the loan. And don't forget you need to pay back the principal part of the loan too.
Taking out a loan to buy a TV just seems like a pointless decision. But getting a loan for education that will help your career is very likely to be a good choice. Taking out a loan to buy an affordable car because you need transportation to get to your work is probably a good choice if there's no public transport. Getting a mortgage to buy a property is essential.
If you run a business, using a loan to buy a very effective time-saving (and cost-saving) piece of equipment could also be an idea to consider.
Know where your money is going
Unless you're a billionaire you really need to know what you're spending your money on, even it's just a rough understanding.
Only so much money comes through the door each month and therefore we need to keep on top of what we're spending money on. It's easy enough to think that you've got the rent/mortgage payment and other essential bills covered, but there are plenty of other expenses and discretionary spending that you may not be counting that are also draining your dollars.
It's only over the course of tracking a full year of spending that you see if you're living within your means or not.
There are plenty of apps that can help you track spending such as Zip Co Ltd's (ASX: Z1P) free pocketbook app.
Don't ignore investing until it's too late
Many younger people think that investing is something you do when you're middle aged or older. Mandatory superannuation contributions are useful, but I think the younger generation need to save more and invest more to get ahead these days.
Compound interest is the strongest financial force and the earlier you start utilising it the longer it has to work in your favour. Investing for an extra decade could be the difference between having $500,000 and $1 million when you retire.
Saving money isn't everything
But don't forget that life is meant to be lived. Money is there as an exchange for other things either today or in the future. It's good to save and invest but don't go too far – make sure you're enjoying your life and doing the things you want to do whilst you're younger.
For example, that trip to New Zealand or Europe with the family isn't necessarily going to happen when you're 80 – some things are worth spending the money on now.
Foolish takeaway
The more money we are able to save to use for investing the more we can grow our wealth which could in-fact fund the lifestyle we want to live today and in the future.
