Avoid These Common Financial Mistakes
Whether you’re just starting out in your career or you’re well-established, there are always potential financial challenges — from affording a first apartment while paying off student loans to saving for retirement. It’s important to establish good habits, or you may end up treading water instead of meeting your financial goals.
Setting priorities and avoiding even seemingly small financial missteps can hep you save over time. Here are eight common financial mistakes to avoid:
1. Spending Your Entire Paycheck
No matter how much you make, spending it all means you’ll never get ahead. Forbes recommends setting up automatic transfers from your checking account. The money will go directly to the account you choose, such as your savings account, and you’ll be watching your bank balance grow before you know it. If your company offers a 401(k) plan, you may also be able to have regular contributions deducted directly from your paycheck.
2. Not Having an Emergency Fund
Life is full of expensive surprises — which is why you should have an emergency fund. It’s a good idea to have three to six months’ worth of expenses saved up for unexpected expenses, says the Financial Industry Regulatory Authority. You can add to the fund regularly but should only make a withdrawal for an emergency, like paying for repairs if your furnace goes out or the doctor bills after an illness. Having this money set aside means you can cover these costs without affecting your budget.
3. Forgetting About Small Expenses
It can be easy to forget to factor your daily trip to the vending machine or coffee shop into your budget. These expenses add up, though, says The Balance. Consider tracking what you spend, says The Balance, and look at how much these incidentals cost. You can then determine whether you should cut back on these types of expenses.
4. Putting Off Saving For Retirement
If your retirement is a long way off, it can be hard to focus on saving now. But the earlier you start saving, the better, says DaveRamsey.com. Start by investing in your retirement plan through work, especially if your employer makes a matching contribution. If your employer doesn’t offer a plan, talk to a financial professional about setting up a retirement fund.
5. Not Following a Budget
Without a budget, do you really know where your money is going? Even if you have money leftover at the end of the month, financial blogger Paula Pant notes that you’re likely not saving as much as you could. Setting a budget and sticking to it can help you reach your financial goals.
6. Carrying a Credit Card Balance
Credit cards can certainly be helpful, but not paying off the balance in full each month adds to your expenses. You won’t just be paying for the cost of whatever you charged — you will likely be paying interest to the credit card company, too. Keep track of how much you’ve charged, and avoid extra costs by paying the bill in full each month.
7. Being Afraid of Investing
If you’re hesitant to invest your money because of dips in the market, you could be missing out on long-term gains, says Forbes. From saving for college to getting ready for retirement, a financial professional can help you establish an investment plan that you’re comfortable with. They can help you choose investments based on your long-term goals and risk tolerance.
8. Spending Your Raise
When you get a raise, it can be tempting to spend that money. Instead, consider saving the difference between your old and new paycheck amounts, says Business Insider. Because you aren’t used to having that money, you’ll never miss it. Put that “extra” money into your savings account or increase your 401(k) contributions. Another option, says Business Insider, is to put your raise toward your emergency fund so that you’re prepared for the unexpected bills that are part of life.
Even small changes can make a big difference in your finances. Set your priorities, avoid common missteps and, before long, you’ll be on your way to meeting your financial goals.
Originally published on September 14, 2011.