We’ve all made mistakes in our younger years that we’ve come to regret later on down the road. Whether it’s not saving enough, taking on too much student debt or not investing in a company when we had the chance. While some financial blunders are easy to fix, others can have you kicking yourself for years to come. Here are some money mistakes that can have lasting effects. Developing bad money habits to avoid is crucial to setting yourself up for long-term success. Failing to budget effectively, for example, can lead to overspending and a cycle of debt that’s difficult to break. Similarly, neglecting to build an emergency fund can leave you vulnerable to unexpected expenses, which may derail your financial stability for years.
Not keeping a budget
Too often people rely on credit cards and don’t realize they’ve been overspending until they’re already in debt. Creating a budget and tracking your expenses can prevent you from spending money you don’t have. You’ll know what’s coming in, going out and how much you can save. All of which will make it easier for you to reach your financial goals.
Only paying the minimum on your credit cards
When money’s tight sometimes you can only afford to make the minimum payment on your credit card. It’s a small amount but hey, something is better than nothing, right? Not really. While making the minimum payment does help you remain in good standing with your credit card company, you’ll be in debt longer than necessary and spend a lot more money in interest. Let’s say you have a $500 credit card balance; the cards interest rate is 18% and you want to pay it off making only the minimum payment of 1% plus interest. It will take you 47 months to get rid of your debt. That’s almost 5 years. In that time, you will pay $198.36 in interest on your $500 balance…that’s an additional 40% added to your debt.
Borrowing money from your 401K
The main purpose of contributing to a 401K is to get yourself financially prepared for retirement. Dipping into the account will set you back and cause you to miss out on potential growth. Usually when you borrow from a 401K, you aren’t allowed to make any contributions until the loan is repaid. If you think you’re struggling now, brace yourself because it’s about to get even worse. Since most plans require repayment via paycheck deductions, you’ll be bringing home a smaller paycheck. If your loan isn’t repaid by the deadline, the outstanding balance will be treated as taxable income. Those under age 59 ½ will also face a 10 percent early withdrawal penalty.
Sacrificing your retirement savings to help your kids
A big dilemma for many parents is whether to save for retirement or fund their kids’ college education. In fact, a recent Bankrate survey revealed that 51 percent of Americans have sacrificed their retirement savings to help their adult children. Letting your kids fend for themselves doesn’t make you a bad parent. They can take out a loan, apply for scholarships or get a job to cover their tuition. Meanwhile you won’t have many options for supporting yourself once you stop working. So, go ahead and put yourself first.
Failing to save for emergencies
You can’t predict the future, but you can prepare for it. One of the best ways to get ready for a financial crisis is to build an emergency fund. You need enough money to cover at least 3 to 6 months’ worth of living expenses. Make a list of all your critical monthly expenses along with the cost. Calculate the total then multiply it by 3. This will give you a good estimate of how much money you’ll need to stay afloat for at least three months. Review your budget and start setting aside money from each paycheck to reach your savings goal.
Letting your credit score plummet
Your credit score plays a huge role in your financial life. Having a good credit score means you’ll receive the best rates on loans and insurance. Plus, a higher credit limit. On the flip side, a low credit score will cost you more money. In some cases, it can also prevent you from getting a new job or apartment. Even if your score isn’t where you’d like it to be there are things you can do to put yourself in a better position. Use these tips to give your credit score a boost.
- Pay your bills by the due date.
- Monitor your credit card balance to ensure you aren’t spending too much.
- Don’t apply for new credit too often.
- Check your credit reports annually for mistakes.
Spending too much money on stuff you don’t need
Often when a big influencer promotes a product on social media, we feel the need to buy it too. The key difference is that while you’re spending your hard-earned cash, they received the item for free and got paid to talk about it. Instead of following the hype save your money for things that truly matter so you don’t go broke. There’s always going to be something newer and better hitting the market, but you don’t need to buy it.
