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How to Avoid These 10 Money Mistakes
Proper money management isn’t something that comes easy — it’s a skill that often takes years to master. If you’re having trouble keeping up with your finances, don’t fret! Instead, take a look at how you can avoid these 10 painfully common money mistakes.
1. Not knowing how much you’re saving and spending each month
One of the easiest ways to spend a lot of money is to not keep track of it. Do you know exactly how much you’re saving each month? What about how much you’re spending? We’re not talking about a general amount here; we’re talking about a precise, accurate answer.
Knowing exactly how much you’re saving and how much you’re spending will help you gauge what’s going in and what’s going out each month, and it can be a great way to help tailor a budget that best suits you.
Take the time to comb over your previous few bank statements—you may be surprised to find a few common charges that can easily be curbed.
2. Squandering your tax refund
It’s estimated that over a third of Americans spend their tax refund immediately after receiving it. This year, instead of spending you entire refund at one time, break it up into smaller installments. Put some toward your savings, and use the rest as you see fit.
One of the best parts about getting your tax refund is the opportunity to splurge. We get that. What we’re saying is to try not to spend it all in one place.
Save a little bit—it doesn’t have to be much. Remember, a little goes a long way when it comes to your savings.
3. Long, drawn-out car loans
Picture this: You’re at the car dealership looking at your future car and you’re offered two different loan options: The first one’s a short-term loan, let’s say three years, with pretty hefty payments. The second option is a five-year loan with much lower payments—payments that are easier to swallow. So which option do you choose?
Although signing up for a longer loan means lower monthly payments, in the end you’ll end up paying more in interest. See, with a longer loan you pay less each month, but you actually end up paying more in the end because there’s more interest over a longer period of time.
If given the choice, always try to keep your car’s loan terms as short as possible.
Also read: How to Negotiate a Car Loan
4. Not keeping up with your credit score
If you haven’t checked your credit score in the last few years, do so–now! Consumers are entitled to one free credit report from each of the three credit reporting bureaus per year.
Keeping tabs on your credit score will help you have a better feel for where you stand when applying for various loans, whether it be a car, home or personal loan.
Want another reason why you should be checking your credit score? An FTC
study found that an estimated five percent of consumers have errors on their credit report, which resulted in fewer loan options. No one wants to pay for a mistake they didn’t make, so be sure to check your report!
5. Paying more for name brands
How often do you find yourself debating whether it’s worth paying an extra $2 for name-brand products vs their generic alternative?
According to a Consumer Reports study, buying store-brand products instead of their brand-name alternatives saved consumers an average of 30 percent on groceries. In other words, if you were to spend $100 a week on groceries, you’d save $30 just by buying the store brand.
Next time you’re trying to decide whether it’s better to pay $4 for a box of Lucky Charms or $2 for the store-brand alternative, choose the store brand — the taste is practically identical and your wallet will thank you for it.
6. Not contributing to a 401(k)
401(k)s and other retirement accounts are great financial vehicles to help you save for the future. If you aren’t currently contributing to one, you should seriously consider starting!
401(k)s aside, there are other, potentially more beneficial retirement solutions out there as well. A quick word of caution: Some retirement solutions actually contain various hidden fees and services, so make sure you properly research your plan beforehand.
7. Not having a rainy day fund
Can you believe three quarters of Americans don’t have a rainy day fund? What’s more, a FINRA (Financial Industry Regulatory Authority) report found that these same people were three times more likely to make a late payment on their mortgage and twice as likely to face foreclosure.
That extra cushion your rainy day fund affords you can give you peace of mind. Plus, it’s just plain smart money management.
8. Not automating your savings account
One of the best ways to amend sloppy spending habits is to automate your bank account.
Set your account up so that a set amount is automatically taken out of your paycheck each month and deposited into your savings account. It’s an easy way to save money, and all it takes is the simple click of a button.
9. Cash or credit?
One of the easiest ways to rack up debt is by using credit cards as your sole means of tender. Pro tip: A good way to help build (or rebuild, depending on your situation) your credit is to only use credit cards for purchases you know you can immediately pay off.
At the same time, though, you don’t want to use your credit card so often that your monthly statement looks more like a five-year-old’s Christmas list than a bank statement.
Good money management means practicing sound financial habits. A credit card is a tool—one that can both raise your credit up and send it tumbling down—it’s how we use it that matters.
10. Not planning ahead
Out of all the common money mistakes people make, not planning ahead is at the top of the list. (But for some reason we decided to put it last.)
In addition to knowing how much you’re earning, saving and spending, plan ahead with your finances. Make a monthly budget, and set goals to try and save a little more each month. It’s amazing how much taking the time to effectively plan out a budget can really help.