Many people wonder why they never seem to have any money. They know that they earn a decent income, but they never feel like they have any money left over at the end of the month. Unfortunately, there are a number of traps that people can fall into that gobble up large chunks of their income and leave them with little or nothing. Here’s our list of the 8 biggest, common money mistakes to avoid that cost people thousands of dollars and leave them broke every month.

1. Using Credit Rather than Cash

A number of studies have shown people who buy stuff with credit cards usually spend 12% to 18% more than when they use cash. In addition to this, we have found that people who use credit to purchase things and then don’t pay off their credit card balances every month, often spend 50% more on their purchases (after interest and fees are factored in). Another study out of the University of Pennsylvania showed that people who avoid impulse spending can save up to 23% on their grocery bills. So if you learn to shop with cash, you can kill two birds with one stone: 1) you won’t use credit and risk getting into debt, and 2) you’ll protect yourself from impulse buying.

2. Only Making Your Minimum Credit Card Payments – This Mistake Can Cost You Thousands

Did you know that if you owe $10,000 on a credit card and only make minimum payments, it will take you 37 years to pay off your balance? During those 37 years, you will likely pay around $19,000 in interest (assuming an 18.9% annual interest rate). If you have a number of credit cards and are only making your minimum payments, make a plan to pay off your credit cards within a few years or else get some debt help. You don’t want to be broke for 37 years. That’s a long time to just scrape by.

3. Always Buying Brand New Cars

According to Statistics Canada, the average cost of a car purchased in Canada is $23,000. However, the median Canadian income is only around $42,000. So how would an average Canadian get ahead if they were to spend half their income on a new car every three years? Don’t fall into the trap of thinking you’ll get most of your money back when you sell your car or trade it in. The average car depreciates (loses) roughly 15% of its value every year for the first 5 years! Then the expenses only get higher when you add in the cost of vehicle maintenance, insurance and gas. Consider buying quality used cars and let someone else pay for the depreciation.

4. Not Paying Attention

One of the most common financial mistakes that people make is that they don’t pay much attention to their finances. Their paycheque shows up in their account every two weeks. They pay their bills, and then they spend what’s left over—if there is anything left over. It takes some time and a bit of work to actually sit down, track your spending (you can cheat and use your bank and credit card statements) and then put together a budget. However, if you don’t do this once in a while, then you’re likely to remain broke and never get ahead. To learn how to budget, click here.

5. Carrying Expensive Debt

For too many people, it’s become normal to be in debt. They always owe something on their credit cards, overdraft or line of credit. In addition, some take out loans or second mortgages from finance companies to consolidate their debts or to pay for unexpected expenses. The problem with these forms of debt is that they are typically very expensive. Paying the interest alone on debts that charge 12% to 30% in interest consumes hundreds of dollars of your monthly income. Then when you add in principle payments, these debts can eat up most of your disposable income very quickly. To learn how to consolidate these types of debts and pay them off faster, click here.

6. Living in a Home You Can’t Afford

For many people it seems like a waste of money to pay rent to someone else when you could pay that money down on your own home. This is a smart way of thinking. However, you have to be careful about how you go about doing this. Many people assume that since they can afford a rental payment of $1,000 per month, they can afford a $1,000 mortgage payment. Unfortunately, this is not true. A good rule of thumb is to add 40% to your rental payment and that is what your own house will cost you each month. That means, don’t commit to a $1,000 mortgage payment if you can’t afford total housing expenses of $1,400 each month. Click here to learn more about renting vs. buying.

Many young couples make the added mistake of buying the best house they can afford when both are working. Then when they have their first child, and one person’s income drops by half because they are on Employment Insurance, they discover that they can no longer afford the house—and possibly their car payments, student loans and credit card debts.

7. Expensive Hobbies

Many people take on hobbies for all sorts of good reasons: they enjoy the hobby, it’s a social outlet, it provides them with exercise and it allows them to unwind or delve into their creativity. However, after a while some people come to view their hobbies as necessities rather than as optional activities. This is fine as long as you’re not broke, but if you’re broke, then reconsider your hobbies, sports and recreational activities to see if there are cheaper ways of doing the same thing.

Many parents can also find themselves struggling financially while supporting their kid’s sports or other activities. Kids are only as expensive as you make them. You don’t have to spend lots of money on your kid’s activities for your children to have a wonderful childhood and learn to excel at something. If you are always broke, reconsider these kinds of activities and see what other options you may have.

8. Not Having Any Savings – One of the Biggest Mistakes Almost Everyone Makes

If you always seem to be broke, the best way out is usually to track your spending, make a budget, find ways to stick to it and then compare your spending to your budget to see how you are doing. However, as part of your budget, you must allocate a certain amount of money for savings so that you don’t have to rely on credit to make ends meet. Emergencies and unexpected expenses always come up. If you don’t have any savings, then you’ll likely have to use credit for these expenses too. This can end up creating a cycle that is hard to get out of. Put money aside for savings each month. This will allow your budget to work and it will give you money to make choices with so that you aren’t always broke. To learn how to save money, click here.

If you found this article to be helpful, you can learn more in a follow-up piece titled, 8 More Mistakes that Keep People Broke (both articles were originally posted in July of 2010).