They say that money can’t buy happiness, but it certainly buys the freedom to make certain choices like where to live, what to eat, and how to spend your time. While money might be a major factor in everyone’s lives, managing it isn’t exactly everyone’s strong point. People always seem to pile up credit card debt.
Here are five common money mistakes you should avoid so you can keep your finances on track.
Credit Card Debt
A common problem for many Americans is credit card debt. In fact, the numbers themselves say everything: according to this article from CNBC, 55% of Americans have credit card debt. That’s more than half of people with credit cards!
American households even went as far as to add around $26 billion in credit card debt last year.
Credit cards are the epitome of temptation. With funding at your fingertips, you can be tempted into the “I’ll just pay it back later” mindset, which can be pretty dangerous to your financial health. Credit cards are only temporary funding options, and the bill comes due at the end of every month. If you can’t afford what you’re spending money on, you’ll be in debt quicker than you can blink.
Keeping your credit card debt under control is vital to your credit health. Credit cards traditionally have high-interest rates and high late payments. Once you lose control, it can be incredibly difficult to get it back.
Curb your spending, discipline yourself, and leave your card at home if you’re going somewhere you know you’ll be tempted to spend extra money. Always pay more than your minimum, and don’t forget to pay on time every time.
Credit cards aren’t the only loans that come with late payments. Some car payments, personal loans, or even mortgages can incur extra fees and expenses if you’re continuously late on your payments. A good way to not get ahead in your financial situation is to miss a few car payments; the late fees alone would be financially devastating, not to mention you’d still need to pay back the original monthly amount.
Avoiding late fees is crucial to keeping your payments on track and your expenses down. Late fees can be pretty high with credit cards especially (refer to the last section on credit card spending) so be sure to pay on time every month so you’re not falling behind.
Some lenders will even work with you to change your due date to a more suitable day of the month.
Not Following Your Budget
If you’ve set up a monthly budget, it doesn’t do anything if you’re not following it. A budget will identify all of your expenses, your income, and whether or not you’re making enough to meet all of your financial obligations. A budget works to curb spending and help you work within a fixed amount of money each month. Breaking your budget’s guidelines can only serve to drive you further into debt.
Living on a fixed income can be difficult, but with overspending and extra fees for missed or late payments, you’re essentially only digging yourself a bigger hole.
Set hard limits on certain expenses, and don’t borrow money if you can’t afford the cost of the loan. Many people think that borrowing more money will help them get out of debt, but in fact, it’s the opposite.
The more you borrow, the more you’re responsible for; and if you’re already struggling with money, it’s going to be pretty difficult to pull yourself out of that debt later on.
Borrowing Too Much and Going Into Credit Card Debt
When you’re taking out a personal or installment loan (or even a payday loan), it can be incredibly tempting to borrow more than you actually need. With money at your fingertips, why not borrow an extra thousand dollars for that TV you’ve always wanted? You can always pay it back later, right?
The problem with borrowing extra money is that you’ll incur interest on any amount you borrow. An extra thousand dollars not only adds that amount to the total cost of the loan but also the interest costs for the total amount borrowed.
Many people make the mistake of not considering how much the loan actually costs in the end after fees, interest rates, etc. The total cost of your loan may be a lot more than you can actually afford.
If you’re having trouble planning your finances, you could benefit from the advice of a financial advisor. You’ll find that planning out your expenses and measuring income is much easier with expert eyes on it.
Not Saving Any Money
Save wherever you can, whenever you can. This applies to any of your expenses.
If you don’t watch your cable TV, you don’t need to pay for it. If you can find a better phone plan for a lower cost, make the switch.
Put your change in a jar. Take a small percentage of your paycheck and put it away.
There are hundreds of ways to save even a few dollars per month, and while that may not seem like much when unexpected expenses arise, you’ll be grateful for even the smallest buffer. A $1,000 expense reduced by $400 thanks to a small savings account can become a much more manageable financial burden.
Don’t make the mistake of thinking you need thousands of dollars in a savings account. While it’s true that the more you have available, the better, having even a few hundred dollars at your disposal can mean the difference between financial ruin and handling your new expense(s).
It’s important to take your money seriously. Save as much as you can, reduce expenses wherever possible, and always consider the full cost of any money you borrow. Never borrow more than you can reasonably afford to pay back or more than you need. Credit card debt hurts!