Perhaps it’s inevitable because we're human, but we all seem to make similar mistakes when it comes to major decisions in our lives. Nowhere is this truer than when it comes to your finances. We've compiled a few of the most common financial practices that people are apt to make and ways to correct them. With the right amount of discipline, planning, and goal-oriented thinking, they are all avoidable.
1. Paying Bills Without Paying Attention
It often happens that in the rush of a day we take our monthly payments for granted. We set up our utilities and Internet services for a certain rate each month, but then as the months roll by, we don't review the billing statements. Whether by accident or by design, companies normally begin to tack on mysterious $2-$5 fees without any clear warning. The new charges were not a part of your original agreement with the company and may therefore not be your responsibility. Make sure to contact the company to dispute these if you can. Finally, be sure to analyze your bills for any charges that you did not make. If you are a new customer and have been charged because of actions you did not know were detrimental, call the company and see what they can do. Some companies, banks especially, have one-time fee forgiveness – if you overdraft, for example.
2. Letting Small Expenses Ruin Your Budget
The greatest enemies to our savings accounts can be the little expenses we incur, maybe just to brighten our day – the mocha from your favorite coffeeshop, the magazines at the grocery checkout counter, or that mid-afternoon snack at work. It’s easy to convince yourself that a one-time $3 purchase won't harm your budget, but we tend to forget how many of those little expenses we allow ourselves. If you get a single mocha every morning, 2 magazines at the store per week and an afternoon snack during work, you will spend $80 or more per month! Don't let this simple oversight wreck your budget. Bring snacks from home, brew your own coffee, and budget a certain amount of fun money each week to eat out or buy something fun.
3. Buying a New Car
Most experienced car buyers will tell you that purchasing a brand new car is a major waste of money. People obsessed with getting the very newest vehicle will inevitably take a financial hit of 15-20% depreciation when the car is first driven off the lot. Don't do it! This means that in a year or two the car will be cheaper, and if you shop around, you can find a car – for a much lower price than new – with low mileage that will still provide many years of service.
4. Living Without Saving
Emergency expenses can throw your life into upheaval. You may have to forgo little luxuries now, but saving up for these unforeseen costs can save you a lot of financial and emotional pain in the long run. You need to have savings equal to 4-6 months’ worth of expenses in order to weather a financial storm –whether you develop medical problems or lose your job or something similar. The first step toward determining this amount is to understand what your necessary expenses are each month. Next, multiply that number by the amount of months you would like to save for – four to six months is recommended. The result is the amount you need to save before you even think of moving on to your retirement savings. This amount will keep you safe in an emergency and that peace of mind will let you pursue other goals in the future.
5. Living off Credit Cards
If you are paying bills with credit cards every month, then you need to reassess your lifestyle. Your general budget for your home, utilities, food, car, health, phone, and student loans should be paid solely with money that you are earning. If you are falling short each month, then you need to consider a second job. Any time you use credit cards, be sure that you can pay the balance off immediately. Otherwise, your credit score, as well as your budget will be sacrificed.
6. Ignoring Your Health
From the day we are born, our body needs tending. Whether it’s brushing our teeth, eating well, or getting 30 minutes of exercise each day, it’s crucial to take care of your body as a means of prevention. You don't just want to live longer – you want to live longer and healthier, without expensive health care costs. If you're unhealthy, your expenses will be more numerous and your insurance rates will increase substantially. The good news is that a lot of prevention is free.
You can share this list with any of your friends – we guarantee you that they are making some of these same decisions. So, know that you are not alone, but also know that you are all that stands in your way. Good luck!
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