Finances are more than just having an income, saving, and paying bills. There are other factors that contribute to having a stable bank account and planning for your future. Some of these factors are common financial mistakes that can end up having a heavy impact on your debt and credit scores. It takes time to learn how to manage your money, but it is important to consider these five common mistakes and how to avoid them.
Comparing Your Life to Friends
It's fun to imagine yourself in a fancy car or brand new, designer wardrobe. What's even more desirable (and something we may need to do some serious reflecting on) is the idea of showing off our newly purchased goods. The rise of social media has inflated this need to compare and share everything that's going great in our life. Instead of focusing on Instagramable meals at expensive restaurants, consider hosting a dinner party where each guest brings a dish. Interesting conversation and less phone time are more enlightening anyway.
Not Having a Budget
Get creative and start organizing your spending habits. Compare your bills to how much you make each month. Set aside specific amounts for groceries, bills, and miscellaneous spending. Budgeting for groceries in particular is a great way to save money. Often times we head to the grocery store on an empty stomach and everything we see sounds appetizing, forcing us to purchase more than we need. This free app is a great way to start budgeting your spending.
Relying Too Much on Credit Cards
Credit card companies lure consumers in with their rewards programs and by offering interest-free spending for the first year. Don't let your spending habits create more debt than you can pay off. If you do have credit card debt, stick to a payment plan and don't let cash-back rewards entice you to pay using credit the next time you spend money. Also, once you do pay off those credit cards, don't cancel them. Keeping open lines of credit is appealing to lenders if you plan to purchase a house or car in your future.
Not Having Insurance
In most states, auto insurance is a requirement to be able to operate a motor vehicle. However, to cut back on costs, most of us take the cheapest route. If you were to opt for a higher deductible, you could be responsible for paying a few hundred dollars of damage out of your own pocket. If your car is new, gap insurance is also something to consider, in case your car is totaled, and you owe more than the depreciated value. Last but not least, medical insurance is something most full-time employers provide and would be smart to enroll in. According to studies, medical debt is the primary reason for bankruptcy filing.
Not Having a Savings Account
Always put a portion of your paycheck into a savings account that goes untouched. Unforeseen circumstances could mean having to open credit cards and go into debt or risk missing bill payments. Financial experts recommend having three months' worth of expenses in your account, so you have a steady cushion if you were to lose your job. Now’s the time to up your 401K contribution, even if just 1%, and gauge where you are at with your retirement fund.
Nowadays, credit card and student loan debt are common among the average household. It's nothing to stress over however, simply getting your finances organized with payment plans and budgeting may help you sleep better at night.