5 worst financial mistakes to avoid

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Financial mistakes happen all the time – and you are not alone if you have some financial regrets yourself.

Indeed, a study carried out in 2019 by Finder.com found that about 126.5 million American adults admit to having made a money mistake at least once in their lifetime.

While money mistakes are arguably subjective – you might regret having so much student loan debt, but that degree was necessary to launch your career – there are, however, a handful of missteps that experts agree you can. easily avoided.

Here are five common money-making mistakes and the steps you can take to avoid them.

1. Not having emergency funds

If 2020 has taught us anything about our finances, it’s the importance of having a emergency fund to operate when unforeseen events arise, such as job loss or unforeseen medical bills.

When you don’t have any extra cash aside, you are forced to use expensive means to finance your life. This can include building up high interest credit card debt, taking out a cash advance, or using payday loans. Access to many of these financing options will also be linked to the type of credit rating you said Leslie Tayne, a lawyer specializing in debt relief at Tayne Law Group. Your credit score helps lenders decide how much credit to extend to you and what interest rate to charge you. If you have a low score, you might not get the best rates.

If you’re just starting to build an emergency fund, Tayne suggests starting small.

“Even saving a small amount, like $ 25 a week, will net $ 1,300 at the end of the year,” she says. Other financial advisors recommend using all financial savings, such as a stimulus check and / or a tax refund, to start your emergency fund if your basic needs are met.

“Even a $ 1,000 pillow can take a lot off your shoulders,” says Danielle Harrison, a Missouri-based CFP at Harrison Financial Planning.

Not all financial advisers agree on what to do if you’re juggling high-interest debt and trying to save for an emergency fund. Some experts argue that building up an emergency fund before paying off your credit card debt is bad advice, while others recommend prioritizing your emergency savings before speeding up debt repayment.

“A lot of people hate consumer debt and are motivated not to go into full debt,” says Wilson muscadin, financial coach and founder of Speakeasy Money. “While this is a fantastic and laudable goal, it shouldn’t come at the expense of being prepared for an emergency. They’re basically betting they won’t have a financial emergency in the amount of time it takes to pay off that debt. . ”

Open a high yield savings account to start your emergency fund

High yield savings accounts earn you more interest than traditional savings and the best have no fees or minimum balances. the Marcus High Yield Online Savings by Goldman Sachs, for example, does Select’s ranking as one of the best because it offers no fees and easy mobile access.

2. Pay the bad debt first

If you have student loans and a car payment and credit card debt and a mortgage, it can be difficult to know what to tackle first. But financial advisers warn you that you need to be careful about which balance you want to pay off first.

“I find that many people are paying extra for their mortgage with a 3% rate instead of attacking their student or auto loans which often have much higher interest rates,” says Kelly Welch, Pennsylvania-based CFP at Girard, a Univest Wealth division.

When working on your debt repayment plan, start by writing down all of your balances and the corresponding interest rates. Welch recommends tackling your highest interest rate debt first, such as credit card, then switch to lower-rate debt, such as mortgages.

“I encourage my clients to treat [credit card] debt with a sense of urgency, sometimes even suspending pension contributions until they can control their balances ”, Brenton Harrison, a Tennessee-based financial advisor at Henderson Financial Group, tells Select. “Paying them off not only improves your credit score, but also frees up room in your budget to contribute more to savings and investments.”

Paying off your high-interest debt also helps you save in more ways than one, argues Tayne. “You can’t save money when you pay more interest on debt than you save each month,” she says.

Consider a balance transfer to speed up paying off your credit card debt

Balance Transfer Credit Cards offer zero interest introductory periods so you have more time to pay off your credit card balances while avoiding accumulating additional interest. the American bank Visa® Platinum card comes with 20 months interest free on balance transfers and purchases (after, 14.49% – 24.49% variable APR), plus no annual fee.

3. Missing employer matching contributions

According to eMoney advisers, this is a common money mistake that young people make.

If your employer offers a 401 (k) matchmaking program, you should make sure to contribute at least up to that point in order to take full advantage of the benefits. Employer-sponsored retirement savings accounts also offer tax benefits to help fund your retirement by having you make pre-tax contributions on every paycheque.

“By not contributing, you’re essentially leaving that free money on the table,” Welch says. “Any small contribution helps and the earlier you start in life, the better off you’ll be. ”

You should also consider making a larger contribution if you can. Often times, people may think they’re putting their best foot forward for their 401 (k) plan once they hit 100% of their company‘s match, say Scott Schwalich and Shon Anderson, Ohio-based CFP at Anderson’s financial strategies. “But the true maximum contribution for any individual is $ 19,500 per year, and an additional $ 6,500 per year in remedial contributions for people aged 50 and over,” Anderson told Select.

4. Not having set up a credit monitoring or alert service

“It’s as easy today as ever for someone to fraudulently bill something into your accounts, open an account in your name, or steal your identity,” says Schwalich.

While freeze your credit can protect you, the easiest way to spot any fraudulent activity on your behalf is to sign up with a credit monitoring service that does the work for you and immediately alerts you to any potential danger.

There are a bunch of free credit monitoring resources out there, Schwalich says, so this one is a no-brainer.

Select ranked on best credit monitoring services and best identity theft protection services. Capital One’s CreditWise® Ranked as the best overall free service for credit monitoring because it offers dark web analysis and social security number tracking, as well as a credit score simulation tool. IdentityForce® ranked as the best overall identity theft service for offering the most comprehensive security features that monitor your information on the dark web, court records, and social media.

5. Allowing “lifestyle creep” to occur

As your income grows, it’s no surprise that you find yourself splurging more often than before ie “lifestyle stream”.

Rather than buying new expensive things when you can afford it, take that extra cash and prioritize your short and long term financial goals first. “If you’ve never known about money, it’s a lot easier not to know what you’re missing,” Harrison says.

Joe Lum, California CFP and Wealth Advisor at Intersection capital, has another name for it: “lifestyle drift”.

“We’ve all heard the logic before, ‘I’m making more money now, so I can afford it. I’ve worked hard for this raise, I deserve it,” said Lum. “While celebrating milestones can create a positive feedback loop to help you reach your long-term goals, that thinking can cause someone to overspend their new windfall.”

Make sure you have a plan for any salary increases or bonuses, like paying off debt or increasing your savings. “Then any extra can be used to improve your standard of living,” Harrison adds.

“Most importantly, having a plan gives you a reason to say ‘no’ so that you can say ‘yes’ to something in the future,” Lum says.

If it helps you avoid “lifestyle creep,” Harrison also suggests leaving social media where people tend to constantly compare themselves to others.

“When we bombard ourselves with images of the ‘best’ life of others, it’s hard not to aspire to more,” says Harrison. Realize that spending more on consumer products won’t make you happier in the long run. Instead, focus on socializing, experiencing, and giving back when you can.

To learn more about IdentityForce®, visit their website or dial 855-979-1118.

Editorial note: Any opinions, analysis, criticism or recommendations expressed in this article are the sole responsibility of the editorial staff of Select and have not been reviewed, endorsed or otherwise approved by any third party.

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