Learning how to manage money effectively takes time and practice. You will likely make some mistakes down the road – the important thing is to learn from them and get better at handling your financials over time. This article lists eight common money mistakes and why you should avoid them.
Everybody messes up when it comes to money, at least from time to time. Ask anyone if they have any regrets involving their money management abilities, and the answer will likely be “yes.” In your twenties, learning how to conduct yourself financially can be difficult. You are tempted to live in the moment and think that you have plenty of time to save later on.
On the other hand, even if you are older, you might be making money mistakes you aren’t even aware of. As long as you do your best to educate yourself financially, however, you will avoid any long-term damage from your occasional mishaps. In order to help you figure out if you’re doing anything wrong, we’ve listed eight of the most common money mistakes people make, regardless of age. Take note, and if these apply to you, do your best to get on the right track.
Not Saving Money
Living paycheck to paycheck leaves you vulnerable in case of emergencies. If something unexpected happens and you need a certain amount of money right away, you will have no other choice than to charge the expense to a credit card. Open a high-interest savings account and start building an emergency fund as soon as possible. This way, you can access your money when an emergency occurs and won’t have to resort to credit. Not planning for worst-case scenarios is a bad idea – it will leave you financially vulnerable and prone to bad decisions, like accumulating debt.
On the same note, saving money for retirement should be a priority, even if you are only in your twenties and believe that you will have all the time in the world to put money aside for old age. Understand the power of compound interest and start contributing to a 401(k) or IRA as soon as you get your first paycheck.
Not Checking Your Credit Report for Mistakes
Your credit score is extremely important. It determines what kind of loan you may qualify for, and how high the interest rate will be. Consequently, verifying your credit report every year to make sure there aren’t any errors is a wise decision. You can get a free copy of your annual credit report here. Check if the amounts owed for each of your accounts is correct, and make sure there are no late payments incorrectly listed. In case you encounter any errors, dispute them with the credit bureau and reporting agency.
Paying Too Much for Mortgage
Refinancing your mortgage can be a wise idea, as you could end up with lower interest rates and lower monthly payments. At the same time, you might be able to shorten the loan’s term. Even if the difference in the monthly payment doesn’t seem like much, you may be able to reduce the term of a loan by half while simultaneously paying less interest over time. Contact your lender and see what options are available.
Ignoring the Financial Aspects of College Education
Higher education is important. However, by maximizing financial aid and looking at lower-tuition schools, you can avoid taking on too much student debt and struggling to repay it for years to come. The job environment for college graduates is tougher than ever. It’s no longer smart to tell yourself that your degree will pay you enough to make up for its cost.
Being Impatient When Needing a Loan
Resorting to short-term money fixes can land you in dangerous situations down the road. Payday loans are never a good idea. Furthermore, financial institutions will often offer you the possibility to access a loan faster, as long as you pay a fee, of course. Finally, whatever you do, never resort to looking for help from a shark loan; they will eat you alive.
An emergency fund will give you something to fall back on in case you need money fast. Concerning other loans, make sure you shop around and do your research before applying for one in order to find the most advantageous loan available for you.
Thinking That Cheaper is Always Better
It’s alright to look for the cheapest alternative when you are strapped for cash. However, even though this philosophy usually makes sense, don’t always go for low prices over quality. Otherwise, you could end up spending more money over time.
For instance, if you need to buy new shoes that you plan to wear heavily, look for a quality pair, even if it’s more expensive. If you buy cheap ones, they may fall apart in a matter of weeks. A tailored suit is another good example – you will probably wear it often, especially if you have a corporate job.
No Health Insurance
In addition to the fact that you will have to pay a fine if you choose to go without health insurance, you may have a hard time paying for your medical care. You risk going bankrupt to cover your medical expenses in case you become sick or get in an accident. For instance, a simple appendectomy can cost as much as $30,000, depending on where you live.
Trying to “Keep Up” With Friends
You are never required to keep up with your friends when it comes to spending money, especially when they make more that you do. Fancy dinners, expensive drinks, and shopping sprees are out of the question when you live on a strict budget. Instead, look for more affordable activities you could all enjoy. On the same note, being in constant competition with your friends over who has the latest gadgets is also dangerous, as it can easily cause you to overspend.
Money management skills can be developed over time. Being interested in how to properly organize your financial life is the first step towards fiscal stability. Once you learn the basics, it will be easier to recover if you occasionally slip up from time to time.