Mistakes happen, like overindulging in a favorite food or staying up too late on a weeknight. But when financial mistakes occur, it can have long-lasting consequences on your credit report and overall finances.
According to Forbes, most Americans struggle with basic money management (citing that 33% don’t yet have a handle on their cashflow). So if you’ve made some money mistakes in the past, don’t feel like you’re alone. There’s no better time to make positive financial changes than now.
Here are some common money mistakes for you to avoid.
1. Not having a household budget
A budget puts you in control of your money. You can see how much money is coming in and how much money is going out.
It’s a guide to help you manage the money you have and shines a light on the categories where you can improve spending habits.
Don’t worry if you’ve tried budgeting before and failed; budgets aren’t perfect. But having one can help you:
- Stay current on your bills
- Help you find more money to save
- Guide you to make better everyday spending decisions
- Help you stick to short-term money goals
Not knowing how much money circulates through your wallet each month can cause you to live paycheck-to-paycheck.
2. Going without a financial plan
The words “financial planning” can sound overwhelming, but it’s not as difficult as you may think. Setting up your own financial plan can be as easy as creating a set of short, medium, and/or long-term money goals or priorities.
Having a plan for your money helps you to:
- Plan big purchases (a house, a car, vacation, or college) without going into debt
- Set up long-term savings goals for things like retirement or a child’s education
- Give you a picture of how much money you should save for emergencies, regular maintenance, or health care.
Having a financial plan creates a roadmap for you to follow so your everyday spending and saving habits can match your financial priorities.
3. Not saving enough money for emergencies
It’s hard to say precisely how much you’ll need to save for an emergency fund because everyone’s financial circumstances are different. The size of your household, income-to-debt ratio, and personal money goals can guide you to figure out how much money you may need to save.
But saving too little money for emergencies and incidentals can leave you more likely to use credit for expenses, thus putting you into more debt.
A good goal to start with is saving $1,000. A household budget can help you manage that.
4. Not investing for the future
One of the biggest financial mistakes that almost everyone regrets is not saving for retirement sooner.
While it’s never too late to start saving for retirement or a future large purchase, it is more advantageous to start as soon as you can.
Compounding interest works better with time. The more time you give your money to earn interest, the more you’ll have at the end of your goal.
5. Paying for unused/underused subscriptions and memberships
Paying for a membership to a gym you rarely visit, or for cable TV when you’re always watching Netflix, takes hard-earned money away from more important things like paying down bills or saving an emergency fund.
You'll save money every month by getting rid of the subscriptions or memberships you no longer need.
6. Getting behind on payments
Getting behind on payments or making late payments will negatively affect your credit score - which, by the way, impacts many areas of your life.
Most lenders, service providers, and landlords will use your credit score to establish creditworthiness. Your payment history makes up 35% of your overall credit score, meaning late and/or missing payments can drop your score, making you appear less creditworthy.
Paying your bills on time will help you keep a good score, which can open better financial options for you like low-interest rates, new lines of credit, and services needed for just about everyday living (insurance, rent, employment, and more).
7. Leaving a job without a plan (or staying at a dead-end job)
If you voluntarily quit your job, you won’t qualify for unemployment insurance. And if you leave without a plan or a new job ready to go, you’ll open yourself up to financial hardships and an employment gap you may need to explain later.
Staying in a job with no likelihood of raises or upward career movement can cut into your income potential. If it’s time for you to move on, start looking for a new job while you’re employed to avoid a break in income.
Be more confident with your money
Money mistakes happen but don’t let them derail your path to a strong financial future. Knowing some of the common financial mistakes most people make will help you to recognize and avoid them.
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