You’re a smart person. Your mom says so. Your teachers always said so. Your boss says so. You have the grades and the good job to prove it. Maybe you even wrote Duolingo and asked them if they could add ancient Greek so that you could read “The Odyssey” in its original language. You’re smart in all areas of your life — so why wouldn’t you also be smart about your money?
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It’s not so simple. In fact, it’s surprisingly easy for smart people like you to make some less-than-brilliant money moves — especially when those moves seem responsible on the surface. To paraphrase the poet Snoop Dogg, if you don’t get your mind on your money, and your money on your mind, you might find yourself broke.
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1. Keeping Your Money in Traditional Savings
One of the best things you can do for your money is open a savings account. After all, you’re not one of those people who’d stuff their money in a mattress. But if you’re only using a traditional savings account — with interest rates still hovering around 0.01% — you might as well be.
Today’s high-yield savings and checking accounts can offer annual percentage yields (APYs) of 4% or more. Parking your money in a low-interest account doesn’t allow you to accrue interest over time, growing your money to keep up with inflation. This leaves money on the table and erodes your purchasing power over time.
2. Focusing on Low-Interest Debt Instead of Investing
This mistake is understandable, especially since even well-known experts like Dave Ramsey push the idea that you shouldn’t start investing until you’re completely debt-free. But not all debt is equal.
While you want to prioritize paying off high-interest credit cards or personal loans, holding off on investing to pay down low-interest debt — like federal student loans or a 3% mortgage — could cause you to miss out on valuable time in the market. The longer your money is invested, the more it benefits from compound growth. Waiting too long could cost you thousands in potential gains and passive income.
3. Thinking Budgeting Alone Builds Wealth
Having a budget is essential to balancing your personal finances, but too many people think it’s the only thing you need to do.
Budgeting effectively can help you live within your means, manage debt, and prioritize saving. But budgeting alone won’t grow your wealth. To truly build financial security, you need to make your money work for you — through investing, real estate, or other income-generating activities like a side hustle.
Think of your budget as the blueprint — not the whole building.
4. Always Choosing the Cheapest Option
You’re a logical person, obviously. You know that choosing the least expensive option of just about anything is the way to save money. Right?
Not always. Sure, you don’t need organic everything at the grocery store, but do you really want to buy the cheapest lumber for that home repair, only to have to fix it again next season? Or fast fashion that frays after a few washes, forcing you to get a whole new wardrobe every few months?
Sometimes, it’s better to invest in a better-made, higher-quality item upfront to ultimately save yourself the extra expenses of replacing it.
5. Buying a House Because It’s the “Adult Thing”
The stereotypical view of adulthood has changed in many ways, but one element remains constant: getting the keys to your first home.
Many people — perhaps you included — labor under the assumption that they really haven’t grown up until they’ve bought a house. It’s often seen as the ultimate sign of financial independence. And it can be, but only if you’re ready.
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Have you worked with an agent you trust? Found programs that will help defray some of your down payment? Can you afford closing costs and still have money left over for emergency expenses or repairs? If the answer to any of these questions is no, you could be buying into a financial burden, not building equity. Homeownership can be a smart investment, but the timing needs to be right.
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This article originally appeared on GOBankingRates.com: Why Some Smart People Stay Broke: 5 Habits That Look Responsible but Aren’t
