Most people try to avoid making errors when it comes to money management. But since we’re just humans, we’re not immune to financial mistakes. While we can definitely learn from our own mistakes, we wouldn’t want that to happen as much as possible.
What should we do then? Pay heed to the teachings of others, especially those who’ve experienced financial mistakes in the past. This way, we’ll be aware of the things we should do or should avoid.
Listed below are six common money management mistakes people tend to make:
1. Not contributing to your retirement savings
When life throws out tough financial challenges, it can hold back your decisions to invest in long-term financial priorities, such as your retirement. Keep in mind that contributing to your retirement savings for the future is just as important as creating your monthly budget. Ask your employer if they are offering retirement plans and take advantage of them. You can also use your tax refund to create a personal retirement savings account. Prioritizing retirement as early as possible is important to help you become financially prepared during your post-working years.
2. Not paying attention to your credit report and score
Why should you review your credit report, anyway? Your credit, including your history and score, has a great impact on your life. It influences not only the borrowing costs on loans, credit cards and insurance, but may also affect your eligibility for a decently-paying job. Always do regular credit checks to see whether there are errors making a negative impact on your credit report. You can get them once a year free and review them side by side. Comparing them that way should make it easier to spot error’s or fraud because they can all be different since the bureaus do not necessarily receive the same reports from the same sources or at the same time. Another option is to subscribe to a credit monitoring service to look over your credit on a daily basis. With a credit monitoring service in place, even identity theft problems could be addressed before they have negative repercussions on your good credit position.
3. Not refinancing a mortgage with a high interest rate
If you have not refinanced your home in the past few years, you could be paying more for the interest rates of your mortgage. Refinancing a mortgage could save thousands and you could pay off your home faster with a shorter term loan. Refinancing a mortgage with record low interest rates, can help you save huge amounts every month which you could use to pay off other debt.
4. Relying on expensive quick cash loans
Personal loans and cash advances using credit cards are two expensive yet quick ways to generate cash. While they can help you big time during emergency situations, using these methods only mean one thing – you’re having troubles with your money management and you don’t have a fixed budget in place. The best way to deal with emergencies (rather than using personal loans and credit card cash advances) is to have a separate emergency fund intended for emergency use only. Having an emergency savings put aside will act as a sponge to absorb financial hits from emergency needs that arise.
5. Indulging in lifestyle inflation
What happens to an individual in the event that his/her lifestyle moves up because of an increase in income? Some individuals tend to increase their spending and expenses, too, because they think that they can tend to these changes effectively. However, this may not be healthy for your finances in the long run. If you really know how to manage your money efficiently, you should allocate that increase in income towards more favorable expenses, such as investing in an emergency fund, contributing to your retirement savings or paying your high interest rate debt.
6. Not paying credit card balances
People, sometimes, miss credit card payments not because they don’t have the money, but because they forgot to do so. To avoid this mistake, consider signing up for automatic payment notifications. Better yet, use an automatic payment system which automatically deducts credit card payments from your checking account at a particular date every month. If you don’t pay in full because you don’t have enough money, make sure, at the very least, to pay the minimum amount so you won’t be charged late fees. You can also contact your credit card provider ahead of time if you know you will be late and try to negotiate to waive the fee.