When it comes to avoiding money mistakes, the rules are clear if you want to try your best to manage money smartly so you always have more than enough to not just survive but thrive and enjoy the world around you.
Whether you’re near retirement or just entering your 20s, some money rules apply no matter your age, as these mistakes know no boundaries. Better yet, some financial mistakes are so easily avoidable that only people without the ability to control themselves get into trouble.
Stop Overspending
Overspending is the single worst money mistake most people make in their lifetime. This could manifest in any number of ways, such as too many Amazon orders to the point where you can’t pay off anything but a portion of your credit card payment every month. It could also be not tracking your spending at all, as small purchases can quickly add up and leave you little room to pay off bills and utilities.
Be Smarter
To get back on track, start by creating a budget that allows you to look at your income and expenses in one document. From there, you can see exactly how much disposable income you have monthly for shopping and entertainment. You’ll have to prioritize your needs versus your wants, and while it will be hard, it’s essential to get your spending under control.
Credit Card Debt Accumulation
While credit cards offer great protection against fraud and theft, they also have a dark side as the temptation to spend too much is always there. You have to be careful with these cards, as the interest alone could end up costing you hundreds, if not thousands, every year if you don’t pay off any balance quickly.
Pay On Time
Beyond paying on time, you have to ensure you are not running your balances up too fast. How you handle credit cards and your debt level with them strongly impacts your overall credit card. At the end of the day, pay your bills on time, and when you can, pay off a balance entirely.
No Emergency Fund
While the prevailing theory is to have you build up anywhere from three months to twelve months of an emergency fund, just having the fund itself is a big win. This might be the difference between you and debt if something like a medical or vehicle emergency comes up and you can’t afford the bills, and putting it on a credit card isn’t an option.
Six to Twelve Months
In many ways, you should build up your emergency fund before you worry about paying off debt. Otherwise, you could end up in more debt overall. To understand precisely how much you need, look at how much your bills will cost you on average for the next six months, and that’s your goal amount.
Not Saving for Retirement
Knowing that you have to pay off all your bills, build up an emergency fund, and keep a budget can be strenuous. This is also before you get into a discussion about saving for retirement planning. The hope is that you work for a company with 401(k) matching, but if you don’t, you need to start saving early and putting away money so that it can compound interest, so you are making money off your existing money.
Little By Little
There is no standard number you need to start putting away every month, as this answer varies wildly depending on who you ask. Working with a financial advisor is the best option to create a personalized portfolio, as is taking advantage of 401(k) matching if available and diversifying yourself to protect yourself against market volatility.
Failing to Save
If you want to think about all the money mistakes people make, not saving is something to definitely worry about. This is separate from an emergency fund in that you want to build up savings to take a trip, put a down payment on a home, or buy yourself a new car. By not saving, you’re just setting yourself up to get into more debt and struggle down the road.
Automatic Savings
The absolute best step you can take is to automate your savings. This means that as soon as your direct deposit hits a checking account, the bank automatically transfers a portion to a savings account and it automatically gets you into a position where you don’t count on this money monthly.
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