Five Financial Mistakes Never to Make
November 13, 2017
Whether you’re a prince or a pauper, or somewhere in between, it’s important to know how much of your hard-earned dollars are coming in and going out. Whether you’re new to the work force or have been working for many years, keeping track of your finances is very important, especially as your situation and goals change and mature, like if you want to buy a car or a house, save for educational expenses, and prepare for retirement. Financial planning doesn’t have to be hard or overwhelming if you set up a system that works for you and stick to it. And, by avoiding the following five mistakes, you’ll have a lot more in your wallet now and in the future.
Mistake # 1: Use More Than 2 or 3 Credit Cards
It’s soooo tempting to open a credit card in stores to get the 10 or 20 percent discount they are dangling in front of you, but DON’T DO IT! Before you know it, you will have 10 to 15 credit cards, most likely with balances you can’t pay off each month (see Mistake # 2 below), and this will really harm your credit rating. Most credit cards have annual interest rates of 14% or higher, and the department stores are at 18% or higher. For example, if you buy $1000 worth of stuff in January and only make the minimum payments each month, you will have paid at least $120 to $200 of interest and still owe about $300 by December, and half the stuff you bought will be already old or discarded! You can really raise your credit score by buying only what you can pay in full and on time. In any event, you should keep your outstanding balances below 30 percent of your total credit line per account.
Mistake # 2: Buy Large Ticket Items that You Really Can’t Afford
I know, having the newest iPod or iPhone or iWhatever is cool and fun, but getting into debt isn’t. Try to live below your means. Get in the habit of saving for the big ticket items that you really want. Set up a jar and dump in your change and even your one dollar bills every night. Every time you avoid buying that double vente in the morning or that candy bar after lunch, put that money in the jar instead (both your wallet and your stomach will thank you!) Before you know it, you’ll have that fancy new gadget you want (probably a better model than the one you first saw) and savings and spending habits that will last you a lifetime.
Mistake # 3: Don’t Save for Retirement
Well, it may seem like a long ways off, but with people living longer and Social Security looking weaker, you’re going to need to put a little aside now for your golden years. And just a little will make a big difference, especially the sooner you start. The effects of compounding interest are amazing. For example, if you are 25 years old and you put just $100 aside each month at 7 percent interest per year, you will have $264,012 by the time you are 65; if you start at 35, the same savings will get you just $122,709, but that’s still better than not putting anything aside at all!
Mistake # 4: Don’t Maintain a Filing System for Financial Records
You will lose so much time and money over the years if you don’t keep good financial records. It’s important to be sure that all of your credit card charges are accurate when the bill comes each month as well as your bank accounts, etc. (despite what companies want you to believe, computers do make mistakes!) Plus, so much paper comes at you each day – a system to manage it all will save you time and money. You should separate paperwork as soon as you get it or finish with it. First, once you figure you won’t need a record, shred anything with personal information on it. Then, set aside the bills that need to be paid in their own pile. Try to automate bill payment as much as possible, but not to the point where you’re not paying attention to the amounts of money involved. Once you’re finished with paperwork that needs to be kept, file it away in whatever filing system you set up (usually manila folders get the job done; you might also want to look at David Allen’s book Getting Things Done). There are a lot of different systems out there to consider — experiment and find the one that works for you and then stick to it!
Mistake # 5: Don’t Have an Emergency Fund
These days, you never know what’s going to happen, and unexpected expenses pop up all the time. Setting up an emergency fund for those times when you need to get your hands on a wad of cash is a goal worth setting. You should aim to put aside money that will cover your basic expenses for at least three to six months, such as rent, utilities, commuting expenses, food, etc. Put it in a safe and easy to reach (but not too easy) account that earns interest. That way, if you need the money, it’s there for you; if you don’t, you’ve got another source of savings available that’s growing.
Everyone makes mistakes in life, but with a little planning and determination, you don’t have to make these ones!