You would think that since we handle money on a daily basis we should be experts on money, but the reality is that we make a lot of money mistakes that lead to us losing our hard earned money.
If you read my story, you know that I made a lot of money mistakes that kept me living paycheck to paycheck every month. Fortunately I have rectified some of those mistakes, but I’m still working hard to get on the path of financial independence. Below is a list of common money mistakes I’ve made and that you should avoid.
Common Money Mistakes
1. Not Having a Budget – Everything changed for me when I started a written budget. Now, all of the sudden, I could see exactly where my money was going and I could make adjustments to my bad habits. Keeping track of your expenses will help stay organized with you finances, will help you save, and it will help you see when you can splurge on fun things.
2. Saving What’s Left Over – I used to get my paycheck and pay bills, pay rent, buy groceries, spend money going out, and then try to save whatever was left over at the end of the month, but I found that I never had anything left over. The best way is to pay yourself first! As soon as you get your paycheck, decide how much you want to save and move it to your savings. Do this before you do anything else. Having a budget will help you determine how much you can save.
3. Carrying a Credit Card Balance – By not paying my credit cards off every month, I was making credit card companies richer. Unfortunately, I wasn’t alone in this. According to a recent study, the average indebted US household owes $15,252 in credit card debt. That’s roughly $190 a month in interest every month (at 15%).
I now only use credit cards to purchase things that are on my budget (groceries, gas, cell phone, etc.) and get the rewards. I always make sure I pay them off at the end of the month to avoid any interest. Getting cash back and not paying interest is like free money.
4. Paying Bank Fees – Some banks have a lot of different fees that they can charge if you don’t follow their rules. The best thing is to switch to a better bank, but if this is not possible, avoid paying the fees. ATM fees, overdraft fees, and ‘not having enough in your account’ fees add up over time.
5. Living Beyond Your Means – This just means spending more than what you make and relying on credit cards. This is a sure way of getting into debt. If you have missed a payment, have paid overdraft fees, can’t pay off your credit cards off every month, and don’t have any money saved, then you are most likely living beyond your means.
6. Not Having an Emergency Fund – I had to rely on credit cards whenever a financial emergency came along because I didn’t have an emergency fund in place. We just never know when our car is going to break down and having some money stashed away will help us avoid stress and debt.
7. Not Taking Advantage of Free Money – If you are not contributing enough on your company’s retirement plan in order to get the company match (if you have one) then you are leaving free money on the table. My company has a pretty decent matching plan (75% of my contribution as long as I contribute 6% of my salary) but I wasn’t taking advantage of it for a long time.
Find out if your company matches your contributions and do everything in your power to get that match.
8. Paying High Fees on Mutual Funds – Most managed mutual funds have been proven to under-perform index funds in a range of over 10 years when fees are taken into account. This is because some managed mutual funds charge high fees and their returns are not that much better than index funds, which in general charge very low fees. If you are paying more than 1% in fees, you are paying way too much. Try to keep it at least under 1%. If you invest in only index funds, you could get those fees down to under 0.20%
9. Not Checking your Credit Report Regularly – By checking your credit report regularly, you could catch mistakes that could potentially cost you hundreds of dollars. These mistakes could be in the form of identity theft or an account that you assumed was closed but it was not. You can get a free credit report, authorized by federal law, every 12 months at AnnualCreditReport.com.
10. Not Having Life Insurance – If you have children or anybody that depends on you financially then it might be a good idea to get life insurance. We love to think that we’re going to be around forever, but we all know that’s not the case. We don’t know when our last day on earth will be so let’s leave our loved ones taken cared of… at least financially. Term Life Insurance is very inexpensive and the one that most financial experts recommend.
11. Not Having a Will and/or a Trust – This should be tied to #10; you can’t tell anyone your intentions when you are dead – too morbid? – so if you want your wishes to be carried out then you should have a will. A trust is an easier way to move assets to loved ones without having to go to court. Read this for more information on trusts.
Don’t Make The Same Money Mistakes I Made.
What are other common money mistakes you have made?
[Photo Credit: TaxRebate.org.uk]