It can be hard for people to manage their money properly without doing a little research first. There are also BIG mistakes that people can make that will make it even harder for them to manage their money in the future.
A life that’s free of debt that allows you and your family to be happy isn’t as difficult to achieve as you might think. The keys to doing it are having both short-term and long-term financial goals and communicating how you want to reach them if you need your spouse or other family members to be on the same page. It really starts with just developing simple habits and avoiding some common mistakes that people make that lead down the road of debt burdens and tough times.
The following money mistakes will stop you from reaching your financial goals, but they can be avoided, and here’s how:
1. Falling Behind On Your Payments –
Once you fall behind on payments, it’s hard for you to catch up. You will have to pay a fee every time that you make a late payment. This will not only make it difficult for you to catch up on your payments, but it can also cause you to have to spend more money in the long run.
If you have been making payments late, then the first thing that you will need to do is catch up on your payments. You will also need to set up a budget. Additionally, using payment reminders can help you pay your bills on time. You can also set up automatic payments for most bills that will automatically deduct money from your account each month to pay the bill.
2. Not Balancing The Checkbook –
If you have both checking and savings accounts at your bank, you need to balance your checkbook. One of the things you’ll run into whether it’s using your debit card, writing paper checks or having funds withdrawn electronically from your account is that it usually takes a little while for transactions to show up in your account. So as soon as a deposit or transfer into your checking account is made, or as soon as you write a check or make a withdrawal, you need to record it. Usually, checkbooks have copies for each check that you write, and it’s a good idea to hold onto all purchase receipts so that you can enter them. Balancing the checkbook could take a while and will usually require a calculator, but by staying on top of your checkbook balance, you can avoid unnecessary bank fees and keep better track of your budget.
3. Paying Only The Minimum Balance On A Credit Card –
Different experts have different ways they explain on how to handle your credit cards with some saying you should carry a very small balance, while others say you should have none or don’t use your credit cards at all. But the majority agrees that you should pay your credit card balance in full each month and not make only the minimum payment. What many people forget is that credit cards are not usually like mortgages or auto loans that only carry single-digit interest rates designed for long-term payments. The more balance you carry, the more interest you will pay each month, and the higher your debt utilization ratio will be. You want to keep that ratio low, so you don’t hurt your credit score or have negative reports issued with the three major credit bureaus (Equifax, Experian, and TransUnion).
4. Not Choosing To Live Frugally –
Often people want to buy everything new and in specific name brands. Or, in the case of younger adults or newly married couples, they may try to accumulate too much too fast. Those who find themselves reaching their financial goals in the long-term are those who live frugally and make smart decisions about where they spend their money. A misconception is that living frugally means you have to live dirt poor and cannot enjoy any entertainment or fun things that your friends are. That’s not true at all. It simply means instead of heading to your favorite luxury store, you might check with family or friends for items they don’t need any longer and bring them to your home. Or you might buy groceries at discounted prices and learn how to cook instead of eating out all the time. Surprisingly you might find that you don’t need all the luxuries your friends have, and as you build more savings and wealth, you’ll be able to live more easily within your means.
5. Not Seeking Help When You Need It –
One of the biggest money mistakes people make is not bringing their debt problems out into the open and seeking help until they get well over their heads in it. You should never be afraid to ask for help because you are usually not as alone as you think. If you don’t think you can take on your debt alone, a non-profit debt counseling agency can usually help. Don’t look for an agency that simply tries to sell a debt management session to you, but look for one that actually offers information that will give you a place to start on budgeting and tackling debt with no strings attached. The debt counseling agency will be willing to discuss everything in your current situation before deciding if you need to try a debt management program.
6. Using A Credit Card For EVERY Purchase –
Credit cards can come in handy. They can help you build your credit. They can also come in handy if you need to make an expensive purchase. However, you do not want to get into the habit of using your credit card to pay for everything. This can lead to debt problems.
People typically spend more money when they buy things with a credit card. It is also harder for people to keep track of their spending when they use their credit card for everything. If you find yourself having to use your credit card all of the time, then you will need to set up a budget and learn where your money is going each month so you can start to use cash instead.
You should only use your credit card when necessary. You should also try to pay off your credit card bill each month. This will not only help you avoid credit card debt problems, but it can also help you save money. You will not have to pay any interest if you pay your credit card bills on time and in full each month.
7. Spending Every Penny You Make And Not Saving –
This is one of the most common money mistakes. It’s imperative to save money because you need something to fall back on if you were hit with an unexpected expense. You should use your dreams as a motivation to save money. For example, if you want to save up money for a home, then you should focus on that goal.
There are a number of things that you can do to decrease your spending. For example, you can decrease your spending by bringing your lunch to work instead of buying it every day. You can also make coffee at home instead of hitting up Starbucks each morning.
It’s also a good idea to use the 50/15/5 rule when it comes to your finances. Fifty percent of your income should go towards essential expenses such as housing, debt, food, transportation, healthcare, and other important household expenses. Fifteen percent of your income should go towards your retirement. Five percent of your income should go towards emergency expenses. Any money that you have leftover can be used to build your regular savings account and also on some personal purchases.
8. Not Getting Insurance –
Life can throw unexpected curveballs. That’s why it’s essential for you to have insurance. Many people end up having to file for bankruptcy because they do not have any money to cover unexpected expenses. You never want to be “insurance poor” which is when you’re paying so much for optional insurance coverage that you have no money left over at the end of the month. Nevertheless, you do want to have certain types of insurance that help protect you and your family in case an emergency occurs.
You will need to make sure that you have health insurance. You will also need homeowners insurance or renters insurance. Additionally, you will need car insurance if you have a vehicle. Life insurance is also another great insurance to have because it will help your family if anything should happen to you.
9. Making BIG Financial Decisions When You’re Not Ready –
Society puts pressure on people to do things by a certain age. That is why many people make financial decisions when they are not ready. You should not buy a home, get a car, or start a family until you are financially ready to do so. We know that’s sometimes easier said than done, but these big financial decisions can have substantial and long-lasting impacts on your financial future. Even buying a car could ruin your credit for years to come if you miss a few payments.
It’s imperative to discuss financial matters with your significant other BEFORE you both say “I Do!” because one of the top 5 reasons for divorce in America has to do with money and financial problems. If money and budgeting are not discussed before marriage, big financial issues can arise once you’ve come back from the honeymoon and settled into your new lives. Try to learn about each other’s financial history, such as debts, investments, assets and liabilities, budgeting techniques, etc. This will help you both understand the differences and similarities in how each of you manages your money. You should also talk about whether you want to merge finances or keep them separate.
These may be the 5 biggest money mistakes that you can make, but they’re not the only mistakes. The upside is that by taking a little time to learn about proper money management, you’ll be able to spot financial problems BEFORE they drain your bank account. Instead of thinking of it as avoiding these 5 money mistakes, learn something from each of these financial fumbles and what you can do differently to reach your ultimate financial goals.