We all make mistakes, and some of our biggest often involve money. From overspending to living paycheck to paycheck, there are numerous money-related errors that rob us of financial stability. If you want to take control of your money, here are some of the best ways to avoid the top financial mistakes Americans make.
Watch Your Spending
In a study this year, Credit Karma found that 40% of millennials spent money they didn’t have and went into debt to “spend socially.” As many as 27% of the millennials in the survey say they feel uncomfortable saying no to their friends when it comes to spending money.
Whether you want to join your friends on a weekend getaway or go to dinner at a fancy restaurant, overspending may be a financial mistake that you’re making.
Even if you’re not swayed by your peers on larger spending ventures, you may be overspending on the little things. For example, if you go out to lunch every weekday and spend about $10 each trip, over the course of the year, you will spend approximately $2,600 alone on lunches.
The best way to avoid overspending is to stick to a budget. By understanding what you have coming in and going out, you can monitor every expense. Budgeting can also help you evaluate your spending habits and help you determine when you have room to splurge.
Pay Off Your Credit Card
Did you know Americans carry a total of over $1 trillion in credit debt? It’s simple to build a massive amount of credit card debt over time. Just like overspending, little expenses can add up if you’re not careful.
A lot of credit cards have high interest rates that will cost you a significant amount of money over time, if balances are not paid off at a rapid pace.
If you use credit, pay your bill on time and don’t carry a month-to-month revolving balance. If you do find yourself carrying a balance, call you creditor and negotiate a lower interest rate.
If you find you continue to rely on credit to pay your bills or extra expenses, you may want to review your budget. This will highlight areas where you may be overspending or need to cut back. You may also want to increase your emergency fund to prevent financial mishaps when unexpected expenses arise.
Save for Retirement
Do you ever find yourself procrastinating on an important task? Many Americans are guilty of putting off tasks until a later date. One common area in which many people procrastinate is saving for retirement. In fact, Northwestern Mutual’s 2018 Planning & Progress Study found that 1 in 3 Americans have less than $5,000 saved for retirement. Even worse, 21% have nothing.
To ensure you will have enough money to live comfortably in retirement, start saving and investing as soon as possible. A great way is to take advantage of a workplace retirement program, such as a 401(k). If your employer offers a 401(k) match program, you’re essentially being rewarded for saving.
If your employer doesn’t offer a retirement plan, you can look into opening a tax-advantaged retirement account, such as a traditional IRA or Roth IRA. Both have benefits that can help you achieve a more prosperous retirement.
The more money you invest over a long duration of time, the more time your money has to compound its interest. Prioritizing investments for your retirement will help you build a larger portfolio for the future.
While some people procrastinate saving for retirement, others plan to rely on Social Security to support their retirement needs. Social Security was designed as a safety net for Americans who didn’t have support in retirement. You should rely on Social Security only as a last resort.
There are more Americans utilizing Social Security benefits than there are paying into the fund, therefore, depleting the reserves for future generations. This doesn’t necessarily mean you won’t receive any money; it just means you may not receive as much.
Even if you plan to receive some benefits, you need to make sure you have properly invested and saved for your retirement outside of the Social Security program.
Don’t Spend Too Much on a Home
When you purchase a home, it’s easy to overextend your budget. However, bigger isn’t always better. Even if you’re approved for a $300,000 mortgage, you may not be able to afford your monthly payment, utilities, taxes and extra maintenance fees.
Before you purchase a home, you should review your budget and determine the total amount you have allocated for living expenses. Keep in mind, you need to include closing costs, maintenance fees, property taxes and any additional expenses. You may find that you need to purchase a home with a smaller mortgage in order to stay within a comfortable budget.
You don’t want to put yourself in a situation where your home and living expenses cause such financial restraint that you can’t afford dinners out or a weekend getaway.
Have a Financial Plan
How many hours did you spend on social media this week? Now, how many hours did you spend on your financial plan this week?
Most likely there is a substantial gap between your social media usage and the amount of time you choose to focus on planning for your financial future.
Establishing a financial plan will help you prepare for a successful financial future. You need to make planned spending, saving and investing a priority. Planning for the future will help you achieve short-term and long-term financial goals.
It may be wise to partner with a financial planner to get started. A planner can help you develop a roadmap to achieving all your financial goals and help you navigate decisions to ensure you’re heading in the right direction.
The Bottom Line
Balancing your financial responsibilities with your financial objectives is an important skill that will help you avoid financial mishaps. Poorly managing your money can create long-term financial burdens.
Act now and learn to identify the most common mistakes, several of which are listed above. Make a budget, review your spending habits and partner with a financial planner to help you achieve a secure financial future.
What was one of your financial mistakes? What did you learn from it? Please share your experience in the comments below.
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