Common Money Mistakes To Avoid
Are you making one of these common mistakes with your money? In the long run, one of these errors can leave you in an undesirable situation and with extra strain on your wallet. Discover how to avoid these common money mistakes.
1. Living Beyond Your Means
Whether you have one, two, three, or more jobs, you need to make sure the net part of your income covers your day-to-day expenses. This includes everything from your monthly mortgage/rent payment to buying a coffee for work. If you are signing up for memberships and subscription services but don’t have the money in your account, you will find yourself in the negative quickly.
To avoid living beyond your means, you should create a monthly budget. A budget will calculate how much you make and subtract it from your monthly expenses. This gives you an overview of your finances for the month and you can quickly determine if you have enough money or if you need to find ways to cut.
2. Missing Bill Payments
While missing a bill payment may not seem like a big deal at the moment, it can lead to long-term financial shortcomings. By missing a payment, more than likely your credit score will go down. Credit scores are how financial institutions determine your “creditworthiness” to lend you money. If you have a poor credit score, then you are less likely to get approved for loans for houses, cars, etc. in the future, or you may get stuck paying too much in interest on those essential purchases. If you continue to miss bill payments, a collection agency will try to collect the missing funds by garnishing your wages or taking back any assets you may have.
If you struggle to remember when your bills are due, look into Auto Pay options. Most financial institutions have this option, even some merchants. This will allow the money to be automatically pulled from your chosen account every month and paid on time.
3. Making Impulse Purchases
Look around. Are there things sitting nearby that you impulsively purchased, and now you barely use? Are you someone who likes to “window shop” but comes out with a handful of things you don’t need? Even at the grocery store, do promotional end caps have you putting more in your cart than what is on your list? All these impulse purchases add up, slowly eating away at your paycheck.
Next time you shop, make a list and stick to it. When you find something off your list, walk away. If you go home and still have it on your mind after a good night’s sleep, then consider the practicality of the item and its usefulness, and if it belongs on a future list.
4. Paying Unnecessary Fees
Late payment fees and overdraft fees are unnecessary fees you can avoid. A $5 fee here and there may not seem like much, but it’s money that doesn’t need to come out of your account in the first place. These fees are designed to encourage fiscal responsibility and help account holders maintain their accounts in a positive standing.
5. Relying On Credit Cards
Credit cards are a slippery slope if they are relied on too much. A credit card is a revolving line of credit that allows the card wielder to make purchases with a small loan with the assumption the money will be paid back eventually. While this is great in a pinch and comes with rewards more often than not, it can become a crutch on your overall financial health.
Swiping your credit card too much can result in a monthly statement you can’t pay off at the end of the month. Carrying a large balance month-to-month can negatively impact your credit score, even if you make the minimum payment on time. So, make sure you take note of how much you are putting on this line of credit to ensure you can pay it off sooner than later.
6. Falling For “Get Rich Quick” Schemes
With our paychecks stretching thinner and thinner in a tumultuous economy, many people have turned to “get rich quick” schemes. These schemes usually result in paying a lot of money upfront and are only worthwhile if you have stellar selling skills. You can often determine if it is a scheme based on the structure: like a Ponzi scheme, pyramid, and other “make money overnight” offers.
It’s best to avoid these money-making “techniques” altogether.
7. Not Saving
It’s never a bad idea to have a rainy day fund set aside. Having a healthy savings account comes in handy for more than one reason.
- For big purchases. To buy a house or car, you need a down payment. To get a down payment, you need to save money and put it aside, like in a savings account.
- For retirement. It’s never too early to start planning for the future, even if retirement is far off. The earlier you start saving for retirement, the more you will have when that day comes.
- For emergencies. Life happens, even if you are the most prepared person in the world, and it’s easier to tackle a last-minute emergency with a savings account.
If you have fallen into one of these money mistakes, it’s not too late to dig yourself out and improve your financial habits! You can even visit your local financial institution to look for other ways to maximize your paycheck and avoid other money mistakes.