Every day you make dozens of personal finance decisions. Many personal finance mistakes are habits that can contribute to poor financial health or unnecessary extra spending. Minor missteps can sometimes lead to major economic hardships.
Here are the most common personal finance mistakes with a few tips to help you avoid them:
Not Checking Your Credit Score
Regularly monitoring your credit score is like a check up on your financial health. It is recommended to review your credit history at least once a year to monitor for unusual activity or identify theft. The top three credit agencies, Equifax, Experian or Transunion, typically offer free credit reports once per year. When reviewing your history, be sure to flag unexpected changes and report any discrepancies. Parents should also monitor children’s credit that could be compromised by would-be identity thieves.
Not Creating a Budget – Or Sticking To It
A quick stop at Starbucks a few times a week for a $5 latte may seem like a minor yet necessary splurge, but it adds up quickly and drains your account. (A venti latte three times a weeks equates to more than $800 a year!) Creating a budget for all spending and bills will help you to identify where your money is going. Tracking spending can allow you to cut out or reduce frivolous purchases and create a leaner lifestyle. But the key to budgeting success is sticking to it.
Having Too Many Credit Cards
Take a look in your wallet…how many credit cards are staring back at you? We’re often tempted by discounts and rewards for opening company credit cards, but too many credit cards – even with no balance – can negatively affect your credit. Having several open credit cards is often viewed as a back up plan for emergencies, but banks see these as large available credit lines. Identify credit cards with rewards that are best for your spending habits and trim down the number of open credit cards.
Using Your Credit Card for Day-to-Day Spending
Living off your credit card for purchases like groceries, gas or a trip to the movies can be very costly. Double-digit interest rates on items you regularly purchase make them much more expensive! Create a monthly budget for day-to-day spending to help ensure you’re only buying items you can afford. If necessary, only put purchases on your credit card that you will pay off at the end of each month.
Paying the Minimum Payment on Your Credit Card
Paying only the minimum payment on your credit card each month compounds your debt and will take significantly longer to pay off. Most of that payment goes to interest and contributes very little to paying down the principle balance. Interest will continue to accrue, making those purchases considerably more expensive. Even paying an extra $10 each month will help you cut down your debt and pay off your credit card faster.
Paying Lots of Unnecessary Fees
Fees to access your money incurred by not proactively managing your accounts add up quickly. Checking fees, late payment fees, ATM surcharge fees, and insufficient funds fees are just a few of the unnecessary payments that are not only costly, but can also negatively affect your financial track record. To avoid excessive charges, monitor your accounts regularly, find a bank or credit union that offers free checking
and surcharge-free ATMs
, set up bill pay reminders, or align your due dates to the same billing cycle.
Financing Major Purchases by Debt, Not Savings
Major purchases can cause major headaches. If you expect to make a hefty purchase (new appliances, major repairs, a new car, etc.), begin saving as soon as possible. Paying in cash, or putting down a large cash deposit, helps to avoid costly interest fees from loans or credit cards.
Withdrawing From Savings Too Often
Mobile banking makes it easy to transfer money between accounts, but it also helps us easily make the mistake of withdrawing from savings too often. The Federal Reserve Board regulations limit withdrawals, or outgoing transactions made electronically from savings accounts to only six per month. (This can also include overdrafts if your checking and savings accounts are linked together.) Set a specific amount each month that is designated for savings and only spend what you’ve allocated in that month's spending budget.
For more information and tips to help you make smarter financial decisions, visit Point Breeze Credit Union’s blog