Everyone Makes Mistakes
Everyone makes mistakes but when it comes to your finances, these mistakes can be quite costly. Here are some very common mistakes that people make with their money. How many are you guilty of?
1. Not Considering The Little Things
In finances, it is often all of the little things that mean the most. Little bits of spending that, taken by themselves, do not mean much. When you add them up though, over the course of a month, a year or even years, they add up to big money.
Even super sizing your lunch at the drive through every day can have a big impact. Add it up and that is $1 a day, $5 a work week or $250 in a work year. In 20 years, that is over $12,000 that could have been saved with compound interest. All because you wanted a larger drink or a few more fries.
When you think about it, you probably waste an easy $5 a day on things that you do not need. A latte here, a candy bar there or an app you didn’t need to download. Save that $5 and you can save $1825 a year. In 30 years, that is over $220,000 with compound interest at a nominal return.
The little things add up, so see how many you can cut out and put that money into savings or an investment account.
2. Not Saving Now
Some people put off saving until they make more money. It is easy to do, after all, who wants to change their lifestyle so that they can put money away for tomorrow. The problem is that you will never make enough money if you do not prioritize savings. As your pay goes up, your lifestyle will go up accordingly and you will keep saying the same thing. I will start saving when I make more money.
Instead of putting saving off, sit down and make some budget adjustments. Make saving 20 percent a priority and fit the rest of your budget around what is left.
3. Not Being Prepared For An Emergency
Preparing for an emergency can make the difference between being able to ride out a financial storm or sinking in the rough waters.
For starters, you need to have a well stocked emergency savings account. Take your monthly financial needs and multiply that by at least 3, 6 is even better. Six months of bills in the bank will go a long way in an emergency. Put the money in an easily accessible high yield savings account so that you are still earning some return. If you have $20,000 in your account you will still earn $400 a year in interest. Not huge but it is something.
4. Not Maximizing Your Income
You only have so many years to earn, stop wasting them. If you have grown complacent, shake things up. Go for more education, more certifications and in general make yourself more valuable.
If you are not making what you should at work, it is time to freshen up the resume. Employers do not give those big raises anymore. They save the money to attract new talent. If you want to make more, changing jobs is usually the way to get it done.
Also, do not forget about the side gig. If you are only working 40 hours a week at your regular job, there is almost no reason that you can not add a bit of side work. Money that could go right into long term savings or investments. Put that extra $100 a month directly towards a tax deductible IRA contribution, effectively negating any extra income tax you might have had to pay.
5. Not Controlling Your Spending
Are you an impulse buyer? Do you always have to have the latest model of iPhone? This is a problem. There will always be something newer and shinier so you need to learn to be happy with the things that you have and keep them for their usable life.
Instead of getting a new car every 3 years, make it last for 6. Instead of getting a new phone every time you are eligible, keep it for 2 years, even 3. People tend to replace things much earlier than they need to and when you do, you waste a lot of money in the initial depreciation.
Next time you want to make a big purchase, give yourself a cooling off period of at least a week but preferably a 30 day period. Then if you still want it buy it. Chances are that the impulse will have diminished and you can continue on the saving path.
6. Not Investing
That high yield savings is nice but at 2 percent interest, your money is not doing much. Don’t be afraid to invest in higher risk and much more profitable arenas like stocks, especially when you are younger. As you get older and closer to retirement, you can move your money to less risky bonds and government securities. You need the big early growth to maximize your savings.
So, how many of the mistakes above are you guilty of? Even one can be detrimental to your savings so take the time now to address the issue and get on the right track. A track that may lead you to a rewarding and possibly early retirement.