Everyone makes mistakes—even financially. You’re not alone if you have money regrets. But, it’s necessary to understand how money mistakes can affect the rest of your life. The habits you form now will shape your financial future, and getting ahead of any past mistakes will help tremendously. Are you curious if your financial habits are harmful? Below are the biggest money mistakes people make:
Avoiding a budget
You probably hear this constantly, but having a budget is crucial—even if you think you don’t need one. Watching your money disappear isn’t fun. However, you need to know where your money is going, and long gone are the days of tracking your spending on a spreadsheet. There are tons of free budgeting apps, like Mint and Honeydue (perfect for couples!), that allow you to see where you may be overspending.
Getting behind on payments
Falling behind on your mortgage, car payment, or credit card bill creates a tough cycle to break. You pay more in interest and late fees and also severely damage your credit score. You need to determine a strategy to pay off debt—and analyze your spending to figure out why you’re falling behind.
If your goal is to pay off debt and avoid accumulating interest, the avalanche method is your best bet. Start by paying off your debts with the highest interest rate first, then work your way down. Your overall debt load is reduced faster, and you pay less interest.
Using credit cards for everyday expenses
Credit cards aren’t evil if you use them correctly. However, many people use their credit cards for daily purchases—which come at a high price. If you can’t pay your statement balance in full, you should reserve your credit card for emergencies or other appropriate situations, like recurring payments. With double-digit interest rates, you’ll wind up paying more for items that are probably consumed before you receive your credit card statement.
Spending more than you earn
Spending more than you earn goes hand-in-hand with using your credit card for everyday expenses. Charging your credit card here and there may not seem like much, but when you’re not seeing the money disappear from your account in real time, it’s easy to spend hundreds (or thousands) of dollars.
If you’re trying to control your spending, use your debit card instead. It’s much easier to track your spending when using a debit card, as you more than likely know how much is in your account and how much you can afford to spend. Using a debit card also reduces the habit of impulse buying.
Missing out on employer matching contributions
If your employer offers a 401(k)-matching program, contribute at least up to that percentage to take full advantage of the benefit. If your employer matches 401(k) contributions up to 6%, you should at least contribute 6% of your pre-tax income. By not contributing, you’re leaving money on the table.
You can also contribute more than what your employee matches. Most people think that contributing 100% of their employee match will max their 401(k) contribution, but that’s not the case. You can contribute up to $20,500 in 2022, and anyone over 50 has an additional allowance of $6,500.
Not having an emergency fund
If the past two years have taught us anything, it’s that an emergency fund is critical—and something most people don’t have. 56% of Americans can’t cover an unexpected $1,000 bill with savings. Instead of drawing money from an emergency fund, many would have to go into debt. In a perfect world, emergencies wouldn’t exist—but we know they can happen whenever. Having at least $1,000 in a rainy day fund will go a long way in an unexpected situation.
Not knowing where to start may seem overwhelming, but you can make it happen. Use an app to start saving or have a monthly goal. You should also review your budget to see where you can eliminate unnecessary funds and put that into your savings. Don’t have a savings account? Now’s your chance to open one. Georgia’s Own offers various savings accounts that work for your needs and keep your hard-earned money safe.
Not monitoring credit score and reports
Monitoring your credit score and credit report is something you should do regularly. Checking your credit score and report will help you understand your credit history, inform you of any changes to your score, and keep your credit in good shape. Checking your credit report will also alert you to fraud or identity theft.
Various services allow you to check your credit score and report for free. You’re entitled to a free credit report annually through the Annual Credit Report service, which provides reports from the three major credit bureaus. Georgia residents can get two additional reports for free each year. You can also check your credit score regularly through Credit Karma. Aside from the free options just mentioned, you should avoid running your credit too often. Hard credit pulls, like applying for a credit card, can lower your credit rating.
If you’ve made (or are currently making) these money mistakes, don’t beat yourself up—we’ve all made these missteps at one point. But, knowledge is power, and now that you know what mistakes can be harming your financial future, it’s possible to get ahead. We hope you’ll learn from these mistakes and be equipped during your financial journey.
