We’re all human. And we all make mistakes. But some of these blunders can hurt a lot more than others—especially when they involve personal finances. People who have gone through tough times with money will tell you it’s no fun. While some things are unavoidable, there are certain common issues that can be avoided with a bit of forethought.
Here’s how to solve five common money mistakes everybody makes.
Making Minimum Payments
Some people see minimum payments as a way to get the most out of their credit cards. Only paying the minimum on your account balance, however, will result in you getting buried in interest. The APR (annual percentage rate) on your credit card represents the amount of interest you’ll be charged over the course of a year on an outstanding balance. This will typically be in the range of 20-30 percent, which can end up costing you a lot in the long run.
The Solution: You should always try to pay off as much of your credit card balance each month as possible. Doing this will limit the amount you pay in interest. If you currently have a lot of credit card debt, cut back on your spending until you can pay down your bills. Paying off the highest interest rate balances first will save you the most money.
Not Creating an Emergency Fund
An emergency fund can help you avoid financial downfall in the event of something unexpected happening to you or a loved one. Many people don’t realize that medical expenses are actually the top cause for personal bankruptcies in the United States. This is because a huge amount of the population isn’t prepared for unexpected catastrophe. Most people in the U.S. have under $1,000 in savings.
The Solution: Putting aside a small amount of money each month into an emergency fund can save you in a variety of situations. Building a budget will help you find places where you can cut back on expenses.
Acquiring Too Much Debt
You’ve maybe heard that there are good and bad forms of debt. Good debt—such as loans for a house or college—will in theory boost your financial situation in the long run, and typically comes with a lower interest rate.
Bad debt, like credit card bills for non-essentials, won’t do you any favors. Then again, even if you’re acquiring good debt, there’s a point where it can be considered too much. At this level, you need to figure out a way to reduce what you owe, or potentially face bankruptcy if you can’t pay your bills.
The Solution: Some people find ways to boost their income in order to pay down their overbearing debt. Debt relief is another option that works for a lot of people. Many people have completely erased their outstanding unsecured loans by working with debt negotiation companies. Freedom Debt Relief is one of the most respected organizations in this field. You can get a feel for their successful track record by looking at Freedom Debt Relief reviews from sites like Consumer Affairs.
Not Saving for Retirement
At some point, you’re going to want to stop working a full-time job. However, even if you have Social Security, you might not be able to retire without saving on your own. This is especially true for younger people, as the Social Security trust fund is shrinking in size. Without personal savings, some individuals might not be able to retire at all in the future.
The Solution: Talk to your employer about their retirement saving program. Automatically setting aside a bit of money from each paycheck into an IRA will gradually build a solid foundation for your retirement. The earlier you do this the better, as your money will compound more if it’s given more time.
Spending to Save
Some people see deals as a reason to spend money. After all, if something’s on sale, doesn’t that mean you should buy it? This is actually a tactic used by retailers in order to get you to spend money on things you don’t really need. It’s especially prevalent during the holiday season, when stores will offer massive discounts on certain items. Unfortunately, it’s difficult to control the impulse to spend on something on sale.
The Solution: Only buy things on sale if you were planning to purchase them anyway. For example, there’s nothing wrong with buying toiletries or other products you actively use at a discounted price. Just avoid the temptation of buying for its own sake.
There are many potential mistakes you can make with your money. Knowing these errors can help you navigate away from them before they affect your life.