5 Major Money Mistakes You Should Avoid
Sometime during our lifetime we spend more than we planned, saved less than we should have, or just made some poor financial decisions. A few financial misfortunes here and there can add up to a lot of lost cash over time. Check out these common money mistakes and follow this advice to help put you on the path to a brighter financial future.
Money Mistake #1: No idea where your money is going.
What's the fix? Making a budget is the best thing you can do to find out where you might be overspending. If at the end of the month you see you have spent $250 on fast food and $0 on paying down your high-interest credit card, you need to make some spending adjustments.
Money Mistake #2: Not having an emergency fund.
What's the fix? Try to save a chunk of money in case something unexpected happens. It's a good rule of thumb to have 3-6 months of expenses saved in case of an emergency. Set a goal and don't stop saving until you hit it. If you're not sure how much to save, look at your monthly budget and figure out where you can cut back to start saving for a rainy day.
Money Mistake #3: Waiting to save.
What's the fix? Start saving NOW. Opening a retirement account in your 20s can potentially give you twice as much money as someone who starts one in their 30s.
A good recommendation is to follow the Ten Cent Law: take ten cents of every dollar you earn and put it in your savings account. It won't be hard to live on 90% of your income, and you'll soon have a very nice nest egg.
Money Mistake #4: Using High-Interest Debt.
What's the fix? If you are regularly overdrawing your checking account, using credit card advances, or relying on high-interest short-term loans, you are spending a significant amount on fees and interest. Borrowing is sometimes necessary, but high-interest debt should be a last resort. Work on building an emergency fund to break this cycle.
Money Mistake #5: Paying off debts in the wrong order.
Bigger balances on things like student loans and mortgages can seem overwhelming, but it's the smaller credit card bills that can really hurt you due to high interest rates.
What's the fix? Pay off the card whose balance is closest to its limit (having balances close to your limit lowers your credit score), and then start chipping away at the card with the highest interest rate. Also, look into refinancing options for larger loans to make payments more manageable.
BONUS
Money Mistake #6: Spending money on items you could get for absolutely FREE.
What's the fix? Did you know you can get music, books, magazines, educational classes, and more at your local library for free? Access their website or visit in person to see what they have available. You can also participate in clothing swaps, borrow from friends, or enjoy walks and hikes in parks instead of going to the mall. There are plenty of free ways to stay entertained and learn.
Money Mistake #7: Buying NOW.
If you must have things before you have the money to cover them, you might fall into a challenging debt trap. Debt isn't cheap.
What's the fix? Ask yourself if you really need the item immediately. If you can wait and save up the cash, you'll avoid paying high credit card interest. That is a key step toward becoming debt-free.
