Common Financial Mistakes to Avoid

Having a solid balance in your savings account or an impressive credit score are not achievements that happen instantly. In fact, quite the opposite. Being financially sound is a goal that takes smart and ongoing spending and saving habits. And learning these behaviors is not difficult; it just takes some planning and dedication.

The financial journey is one that continues to evolve just as your life does. Therefore, you’re likely to make some mistakes along the way. And that’s ok! Don’t let potential mistakes deter you. Instead, learn what some of those mistakes are so you can better prepare for them, or avoid them entirely.

Here are some common financial mistakes that are worth familiarizing yourself with so you can keep your finances moving in the right direction.

Not having an emergency fund in place

Accidents happen, and too often they can be costly. And since they come in all forms, they are difficult to plan for—but it is crucial that you do. If you aren’t saving enough of your income and setting it aside for a financial emergency, then you risk putting yourself in a situation where you have to rely on credit to repair the problem at hand.  

Using credit in this way might seem like a simple fix at the time, but depending on the severity of the problem it is also an easy way to accumulate unnecessary debt and fall behind in your financial planning efforts.

An emergency fund will help keep you financially stable so that accidents in your life can be treated as sidesteps as opposed to hurdles. Set aside money from each paycheck to build your emergency savings account.

And an important reminder when it comes to emergency funds is not to dip into it for any reason less than an emergency. It can be tempting to do so, but if an actual emergency arises, you will be glad you have this nest set aside.

Leaning on a credit card for support instead of using it as a tool

There is no question that building up credit card debt is easy to do. Even if you’re only making small purchases, a little bit here and a little bit there can quickly add up. A common mistake consumers make is allowing this behavior to become a habit.

When it comes to credit card responsibility, you need to have a plan of action for how and when you are going to use it. There are likely expenses on which you would prefer to use credit, whether you’re looking to accrue some travel points or simply getting in a routine to build some positive credit. There are benefits to using a credit card, but only if you are keeping up with the payments.

Carrying a credit card balance from month to month can harm you in a few ways. Not only will you have additional debt to owe, which can stall your financial planning efforts, but you will also be paying more in interest, which will accrue each month. Additionally, not paying your credit card bill in full will negatively impact your credit score.

Put a plan in place so credit cards can be an advantage toward achieving your goals, not a hindrance.

Living paycheck to paycheck

Knowing that you have a paycheck coming your way every couple of weeks is a good feeling, but relying on single paychecks too heavily can become problematic. After all, what would your situation look like if the next week’s paycheck didn’t come for one reason or another?

If you’re in a position where your next paycheck is already accounted for, then it’s time to rethink your approach. Your finances need room to breathe, and even if you have been successfully balancing this lifestyle for some time, you aren’t doing your future self any good.

If something should go wrong, whether a job loss or other accident occurs, then suddenly you are in need of additional money. Living paycheck to paycheck means you have as much going out as coming in, and not saving for your future.

Again, this is another instance where it is easy to rely on credit to get yourself out of a possible bind. Instead, take a look at your expenses and bills and find out where you can trim back and start setting some aside for the future.

Not evaluating recurring expenses

From streaming subscriptions to gym memberships to your local food delivery service, you likely have many ongoing monthly expenses. A common mistake that consumers fall into is not reevaluating the worth of these services.

With so many options for delivery services and entertainment subscriptions, it’s easy to just sign up. Maybe there have even been times you’ve signed up for the trial period and then forgotten to cancel before that first payment shows up.

Do yourself a favor and closely consider all of these outlets. If you add up your total costs and consider whether you are getting out of it what you are putting in, then it’s likely you will find a few spots to scale back.

Not having—or sticking to—a budget

It all comes down to this. While there are different types of financial mistakes that are commonly made, most of them can be addressed by simply having a budget in place—and sticking to it. A budget is your financial plan for reaching your goals, maintaining control over your debts and cushioning your future in the event of emergencies.

Create a budget that matches your lifestyle and stick with it. This will help you establish good financial behaviors, and if there is any way to avoid a common financial mistake, it is with good financial behaviors.

Start saving today. Choose from a variety of savings account options from Associated Bank.

 

Sources:

“4 Worst Financial Mistakes Young People Regret & How to Avoid Them,” Money Crashers
https://www.moneycrashers.com/worst-financial-mistakes-young-avoid/

“8 Common Money Mistakes that Can Keep You Broke | Biggest Mistakes to Avoid that Almost Everyone Makes,” My Money Coach
https://www.mymoneycoach.ca/blog/8-common-mistakes-that-can-keep-you-broke.html

“Will Paying My Credit Card Balance Every Month Help My Credit Score?” Experian, May 2020
https://www.experian.com/blogs/ask-experian/better-pay-off-credit-card-full-every-month-or-maintain-balance