Some financial mistakes are all too common. So common in fact, that you might not even realize you’re making one. Keep reading to find out what some of the most common financial slip-ups are, and how you can avoid or get yourself on the right path to correcting them.
1. The Problem: Using credit cards for everything. This financial mistake is very common (quite arguably the most common), and can get you in a lot of trouble if you aren’t careful. We know it’s very easy to swipe/insert your chip card and go, or pay with a credit card that’s already saved in your digital wallet or P2P payment app. However, living on credit cards comes with the potential to rack up a huge amount of high-interest debt if you aren’t paying your bill in full each month. Over time, this interest and debt will continue to increase if you keep using your credit card. This only leads to a vicious cycle of accruing debt.
The solution: Set a budget for yourself, pay only with cash or a debit card, and when that money is gone until your next paycheck – it’s gone. Try not to live above your means, or keep purchasing and adding on debt and interest with out of control credit card spending.
2. The Problem: Not checking your credit report. ID theft is all too common these days – most people have been a victim of some type of financial scam or a fraudulent purchase. If you don’t check your credit report from time or time (or at the very least once a year), you could be a victim of identity theft and not even know it.
The solution: All consumers are able to get at least one free credit report per year through annualcreditreport.com. Be sure to check yours at least once a year, and make sure any open financial accounts or loans are actually yours. If you find any mistakes or fraud on your credit report, you will need to file a dispute with one of the credit bureaus. Should there be fraud on your credit report, it’s also a good idea to add a security alert to your credit report.
3. The Problem: Looking to buy a home you can’t afford. Sure, owning a home is probably one of the biggest financial milestones in life – however, buying one you can’t afford is sure to become a nightmare. Financing a home you can’t afford will create enormous financial stress, and not leave you much room to pay for other necessities. In turn, you may end up reverting to problem #1 above – and finance other things you can’t afford on credit cards. This could all snowball into massive amounts of debt you might never be able to financially recover from, and lead to bankruptcy and/or foreclosure.
The solution: Set a realistic homebuying budget for yourself. Check out our handy homebuying guide and checklist to ensure you find the perfect home for you, without putting too much strain on your finances. Also keep in mind future expenses that come with homeownership – furniture, maintenance, and utility bills. Be sure you can afford the monthly mortgage payment along with these additional expenses comfortably before you put an offer in.
4. The Problem: Not planning ahead for your financial future. This common financial mistake is multifaceted. The first mistake consists of not having an emergency savings account. Throughout life, financial emergencies and unexpected expenses are going to pop up. Not having an emergency savings account to fall back on should your car break down or if your home gets a leaky roof, may lead you to again revert to problem #1 at the beginning of this post – charging on high-interest credit cards.
Another financial problem that stems from not planning ahead is having minimal or no retirement savings. Many of us put off the thought of retirement – thinking that it’s way off in the distant future, but the reality is that it takes years of working and saving to secure the funds you’ll most likely need once you’re retired.
The solution: Start putting money into an emergency savings account as soon as possible. This can be extra money not spent leftover from each paycheck, or you can even set up a direct deposit from your paycheck that goes into a special savings account automatically. Setting up an automated direct deposit will most likely allow you to save more and faster, because it takes the thinking out of it and your savings will continue to grow. It’s like that phrase, “set it and forget it.” This way, when you truly need the money in an emergency – it’s there.
As far as retirement is concerned, the sooner you start investing – the more money you’ll have in your retirement years. Many employers even offer matching retirement contributions, which you should definitely look into if this is something offered by the company you work for. If you don’t know where to begin with retirement planning, it’s best to talk to a local financial advisor to help set you on the right path.
At First Financial, we’re here to help our members achieve financial success and meet their goals. You can get in touch with our representatives at 732.312.1500 or by stopping into any of our local branches.
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A First Financial membership is available to anyone who lives, works, worships, volunteers or attends school in Monmouth or Ocean Counties. See credit union for details. A $5 deposit in a Base Savings Account is required to establish membership prior to opening any other account/loan.