Most of us realize that we throw money away on a daily basis by making common financial mistakes.
Not a single one of us is a perfect person. That is particularly true when it comes to managing our money or maintaining a good credit score. This may sound disheartening, but it’s never too late to improve your financial literacy and correct your financial mistakes. You just have to know what they are. Here are some of the most common mistakes people make with their money and tips on how you can start to correct them.
The most common mistake that people make when it comes to money is spending on things that they like but don’t need. Fancy coffees and cigarettes are two of the most popular items that are a waste of money. Eating dinner out is another form of frivolous spending that costs a lot of money in the long run. That’s not to say you can’t treat yourself to something special every now and then.
But limiting your spending on unnecessary items can help you save a lot of money. Keep in mind that if you can cut back on your spending $25 per week, you’ll have $1,300 extra at the end of the year, which can be put to good use.
One overlooked part of financial literacy is understanding where you can cut back on some of your regular costs. Most people make monthly payments on things like TV and Internet, gym memberships, and subscriptions to movie and music streaming services. Unlike paying a mortgage that is a monthly payment that gives you a little bit of equity, these monthly payments are just money going out the window.
Every now and then, it’s helpful to look at your lifestyle and your spending habits in order to find a way to reduce your spending and give yourself a little more room to breathe financially.
Paying Interest on Credit Card
There are far too many people who are paying interest on their credit cards every month. This is one of the biggest money wastes and financial mistakes a person can make. When you don’t pay off your credit card in full, the remaining balance is hit with interest. The longer you go without paying everything back, the more you get hit with interest that can be easily avoided. You might feel fine buying something for $20 with your credit card, but would you still buy it if you knew it would end up costing $35 with all of the interest on your credit card?
A simple solution is making sure you pay your credit card bill in full every month. If that’s not possible, it might be time to stop buying things you don’t need, especially if you know that you don’t have the money in your account to pay off the credit card bill that will inevitably come. If nothing else, try to use a credit card that has a low-interest rate so you can minimize the extra interest you have to pay until you’re able to pay down the entire balance.
Not Sticking to a Budget
It should go without saying, but everyone should be operating on a budget. Not having a budget is a common financial mistake and another one that can easily be corrected. The task may seem daunting at first. However, once you start tracking your spending and comparing it to your income, you’ll be amazed that you were ever able to get along without it.
The trick is to account for weekly and monthly expenses, as well as payments like car insurance and taxes that you only make once or twice per year. As a general rule, you should be able to cover your needs with 50% of your income, leaving 30% of your income on luxury items and 20% that can be used to pay off debts or used to save or invest.
Ignoring Your Credit Score
In fairness, your credit score is not the most important part of your financial literacy. But that doesn’t mean it should be ignored altogether because it’s important to make it as high as possible. Your credit score can have an effect on the interest rates you pay if you take out a loan of any kind, whether you buy a car or home or take out a personal loan. Everyone is bound to take out a loan several times in their lives, so a good credit score can end up saving you thousands of dollars in the long run.
Each of the three reporting agencies is required to give you access to your credit report for free once every 12 months. That means you can check your score three times per year without having to pay anything for it. Even if you think your credit is fine, mistakes are sometimes, mistakes are made. At times, you can even negotiate to have black marks removed from your credit report. Long story short, don’t sleep on your credit score because it’s an important part of your financial well-being.