Are You Making One of These 5 Money Mistakes?
When it comes to managing your money, it’s essential to review and manage your financial behavior. In some cases, you may not even know you’re making a mistake because, after all, you don’t know what you don’t know. It’s time to take charge and make your money work for you-not the other way around. In this post, we’ll cover five common money mistakes to avoid.
These 5 Financial Faux Pas Are Costing You in More Ways Than One
1. You’re Not Paying Yourself First
Have you ever found yourself saying, “I’ll start saving money when….” but you don’t? There always seems to be a reason for putting it off, or you just forget about it.
Take action now by setting up automatic transfer or payroll deduction so that the savings are automatic. This removes the roadblocks and excuses you create to put off setting money aside for yourself.
Putting money aside in a savings account shouldn’t be something you stop doing once you reach a set goal. It should be ongoing. To start, you’ll need to review your monthly expenses to identify how much you can afford to save.
Have you adopted a habit of paying yourself with whatever is leftover on your next payday?
If so, you’re paying yourself last, and it’s time to stop.
Once you know how much you can spare, it’s time to start paying yourself first — not last. If you don’t have money set aside, you may find yourself depending on credit cards for emergencies or unexpected expenses.
Knowing you have a financial safety net can reduce stress and make you feel more secure.
Research has proven that stress and worry associated with financial difficulties can lead to:
- Sleep disturbances
- Mood swings
- Anxiety
- Depression
- Feeling hopeless
- Strain in relationships
If you feel that stress has become a major factor in your life, it’s healthy to speak to someone about it. Seeking professional support, such as financial counseling or therapy, can help you manage financial stress and improve your overall mental and emotional health.
You don’t want to live paycheck to paycheck and worry about monetary “what ifs.”
Ready to up your savings game? Once you have a bit saved up — usually at least $500 — consider investing in a CD. Online banks are a great option because they don’t have the overhead that physical banks have, allowing them to offer higher savings rates to their customers.
One such online bank is Quontic. They offer CDs ranging from 6 months to 5 years, with exceptionally high rates. They also offer money market accounts and high-yield savings.
Make your money work for you!
2. You’re Paying For Your Checking Account…..WHY?
Checking accounts don’t have to cost you. Free should be the only option you’re considering. If you’re currently paying a monthly fee for a checking account, ask yourself why? Are they offering you some phenomenal perk or service along with it?
Probably not.
Credit unions and online banks are your best bet. Nowadays, credit unions have started to include the community rather than just specific employers for qualification purposes.
Do a local search for credit unions in your area and reach out to them to confirm whether you qualify based on their membership requirements. You’ll find not only do they offer free checking account options but also lower loan rates and higher dividend rates on their CDs.
Online banks are excellent options, depending on your comfort level. You’ll likely have to forego brick-and-mortar visits and instead rely upon phone calls or online assistance. Some online banks offer bonuses for opening accounts with them as well.
3. You’re Keeping Your Savings in a Low (Or No) Interest Rate Account
You may be using an account you opened when you were a kid or banking where your parents taught you to bank. Times have changed; it’s not just the brick-and-mortar banks we’re all familiar with.
Have you ever looked at the rate sheets to see what they’re paying? You may see rates so low they’re almost non-existent, such as .01%.
How is that incentivizing anyone to save?
There’s an abundance of banking options out there that offer rates (that aren’t insultingly low) to help your savings grow. Take the time to compare rates online to your bank’s interest rates.
It’s key to keep your savings separate from your checking account, so don’t use the same bank for both. It can be too tempting and easy to access if you do.
Out of sight, out of mind.
An excellent option for either savings or checking accounts is Current. They’re an online FDIC insured bank that offers rates that tower over standard savings accounts, and they provide access to your direct deposit 2 days earlier.
4. You’re Only Paying the Minimum on Your Credit Card
Looking at your credit card statement, you’ll see a payment breakdown area that shows what happens if you only pay the minimum. This area is called the Minimum Payment Warning. It lets consumers see how long it will take them to pay off their balance if they only pay that amount.
This minimum payment warning section was added in 2009 as part of the CARD Act passed by Congress, and with good reason. It alerts cardholders to the impact their payments have on their balances and repayment.
For example, assume your credit card balance is $2475, and your bill shows a minimum payment of $87 is due.
But, if you look closely in the payment box, it tells you that if you only make the minimum payment each month, it’ll take eight years to pay it off.
It’ll also show you that in the end, you’ll end up paying closer to $3500 due to the interest that accrues each month, meaning you’re paying about $1000 extra in interest.
Do you want to take eight years to pay off under $2500?
If you’ve been paying this way, maybe you haven’t realized how harmful those payments are to your financial health. It’s a very costly money mistake, that, unfortunately, many fall victim to.
Your new financial mantra should be, “I will pay more than the minimum each month on my credit card bill.”
5. You’re Not Being S-P-E-C-I-F-I-C With Your Savings Goals
If your goal is to “save money,” you aren’t helping yourself get that plan into motion. It’s too vague and will most likely result in failure to meet that goal.
Don’t set yourself up to fail — be specific:
- Identify your why — such as a new home, car, or an emergency fund
- Figure out how much you want/need to save to meet that goal
- Now do the math — divide the dollar amount of how much you want to save by the number of months you have to meet that goal.
For example, you have eight months to save $3,000. $3,000 / 8 = $375 per month.
You can break that down further into how much you need to set aside per paycheck. Assuming you get paid twice a month, the amount you need would be $187.50 per paycheck.
That’s much more specific, and you now have the steps to follow rather than winging it.
Summing It Up
Don’t be complacent with your money.
Correct the following money mistakes during your financial review:
- Not paying yourself first
- Paying for your checking account
- Keeping your savings in a low/no interest rate account
- Paying the minimum on your credit cards each month
- Not being specific with your savings goals
Your financial situation can change throughout life, just like banking products and services change. That means you need to periodically review your finances to ensure you’re meeting your goals, making necessary adjustments, and using the best financial tools and options available to meet your needs.
You may also enjoy:
8 Tips to Help Your Budget and Your Wallet
Attention: Your Credit Score Impacts More Than Just a Loan Rate