10 Financial Mistakes You Are Making
It is easy to miss your financial mistakes when they are small and don’t seem like big deals at the time. By doing so, you run the risk of getting your finances into deep trouble that could prevent you from reaching your goal. Here are 10 of the most common financial mistakes people make, along with solutions for how to get your finances back on track.
1) Not Saving for a Rainy Day
It may be impossible to save right now, but try and you’ll be glad. Failing to save now may lead to a huge, frustrating financial emergency in the future. Participate in any employer matching program—most employers will match employee contributions up to a certain amount. If your company doesn’t offer an automatic savings plan, then set up an automatic transfer from your bank account into your savings account each month.
2) Not Being Prepared for the Future
In the US, many Americans have less than $5,000 in savings and more live paycheck-to-paycheck. It’s scary when there are too many bills and unexpected emergencies that seem to always crop up. According to the 2016 Financial Security Index conducted by Bankrate, more than two-thirds of Americans—62%—don’t have the savings required to support themselves for three it took months, but they’re in an even worse financial position—44% have no money whatsoever. The survey revealed that half of the families with incomes of over $100,000 haven’t been able to save six months of expenses. This is especially true if you find yourself in that position transfer funds from your checking account to a savings account on a regular basis so you can fund your emergency fund.
3) Buying Things You Can’t Afford
Living on a strict budget can make life difficult. You could wind up with a pile of debt that you can’t pay off or pay off as planned. This could lead to all sorts of different problems like bankruptcy or further penalties. Evaluate your monthly expenses and income to know exactly how much money is coming in and going out. Do not make any major purchases without first discussing them with your budget, as they could conflict with your budget.
Make sure you’re saving money, too. It’s very important and is the foundation of a sound financial plan. You can therefore keep expenses low and save as much as possible—and even more— so that you can afford all of your purchases down the road.
4) Having No Emergency Fund
According to most financial experts, everyone should have an emergency fund with enough cash to cover at least six months’ worth of living expenses. But that’s easier said than done—particularly if you have high-interest debt hanging over your head. In that case, make it a priority to build up your fund ASAP; once you’ve paid off all those pesky credit cards and other high-interest loans, take whatever money you were using for monthly payments and tuck it away in a savings account.
5) Giving Up on Saving Money
Is saving for a big vacation, a house, or an emergency fund on your bucket list? Setting a timeline for your goals is important for staying focused. People who save just a few dollars every week seldom reach their savings goals. If you don’t want to give up too soon, don’t touch that account for one month.
As an example, if you want to save $1,000 in a year, set up an account that will deposit a certain amount of money each week until you reach your goal. Consider a beginning weekly amount of $5 or use whichever amount works for you. You need to be conscientious of being on top of your finances, but not to the point where saving money becomes burdensome.
6) Neglecting Your Retirement Savings
Your retirement savings should be very high on your list of financial priorities if you have a pension plan. Otherwise, you could find yourself in a lot of financial trouble later on in life. The best thing to do is have your employer make a contribution of at least 10% of each paycheck toward a 401(k) account and set aside an additional 10% for yourself.
7) Cutting Back on Necessities
Chances are you’re participating in behaviors, big and small, that are leading to your living paycheck-to-paycheck. A personal example of one such behavior is spending your whole day’s money on a latte from Starbucks. It’s easy for those minor spending decisions to quickly mount up – that single latte a day could turn into two new pairs of shoes before you know it. All of a sudden, having less caffeine seems like less of a sacrifice, so how do you break your addiction? One tip is to track your spending. Seeing the whole picture can help you identify areas where you can cut back if you see where exactly your money is going each month. And if there are certain expenses that are outside of your budget? You might want to reconsider whether these people deserve a place in your life.
8) Living Paycheck to Paycheck
When you’re living paycheck to paycheck, it means that you’re saving a small percentage of your income each month and spending most of it. As a result, you won’t have any savings when an unexpected event occurs, like an emergency car repair or a health issue. To start getting out of debt and save up for the future, examine your budget and make informed spending decisions. Cut back on expenses that you don’t really need, like going out to eat often or replacing old clothes that still fit. In that case, one may want to explore avenues for earning more money. This might entail taking on a part-time job or doing freelance work.
9) Overcomplicating Your Finances
Keep it simple! One of our financial counselors’ most common pieces of advice is, Keep it simple! It’s great to have a few investing and savings goals, but having more than two can be overwhelming. Be sure you don’t overcomplicate your finances. By keeping your finances simple, you make them easier for yourself and reduce your chances of making a costly mistake.
10) Ignoring Your Credit Score
While the most obvious reason not to ignore your credit score is that it can lead you into financial problems, there are many less tangible reasons as well. You will save a lot of money and it’s much easier to obtain loans if you have a good credit score. One of the most important things you should know about your credit score is what it means and why it matters.