You probably already know the three big mistakes most people make: not having a budget, carrying large credit card debt, and not saving for retirement. But there are some other everyday mistakes that you might not realize.
Knowing these financial pitfalls can lead to a more stable life and help you plan for retirement. Here are 11 financial mistakes that you should recognize and avoid.
1) Buying That Shiny New Vehicle
Car payments are insidious. They erode your monthly income. Buying a new vehicle instead of a used vehicle costs more than you think.The average new vehicle ticket in 2022 is inching up to $50,000. In contrast, although prices are high, a used vehicle will generally run you $34,000. That’s a big difference.
Most people are borrowing to pay for these new vehicles. There’s obviously interest when taking out a car loan. But the new vehicle you’re purchasing continuously loses its value while you own it. So, in reality, you’re paying interest for a depreciating item.
2) Buying Too Big of a House
The living space per person has doubled since 1973. Forty years ago, the average house had 1,000 feet less square footage than in 2022. Square footage went from an average of 1,660 to 2,679. But the family size has decreased. This square footage costs.When purchasing a large home, the question is, “Do we need all this space?” Because not only are you paying the mortgage but also you’re paying to heat and cool these big houses.
3) Staying in a Big House
Dovetailing on buying too much house is keeping a large house. Once you retire and become an empty nester, do you really need four bedrooms? If you still have a mortgage, there’s probably a big payment to contend with.But if you own your home outright, there are still taxes and high utility bills. Consider downsizing.
4) Not Teaching Children About Finance
This is a long-term mistake. Children who understand how credit cards work may be less likely to accumulate revolving debt. They also need help understanding saving and investing.Teaching a child early helps avoid a financial crisis for them down the road. Then you’re not in danger of loaning money or having them move back home.
5) Paying for College With Retirement Savings
You love your child and don’t want them saddled with long-term debt. There’s a nest egg sitting there, and it seems easy to take some of it and pay for college.But what about your future? There will come a time when you won’t or can’t work. Do you think your adult kids will really thank you when you move in with them because you’ve run out of money? Help them make the payments if you must, but protect your retirement.
6) Overpaying for Investment Fees
Investment fees can whittle away at returns. Fees are often accepted as a way of life. But take the time to analyze just how much you’re paying. It may be time to look around.7) Spending Is Greater Than Income
Here’s an obvious one: you spend more than you take in. It’s done all the time. Because of revolving credit, many are buying not only the extras but the milk and butter with it.Go back to that budget and track one month. You'd probably be surprised. At that point, it’s time to make adjustments to your spending habits.
8) Not Having an Emergency Fund
Not having an emergency fund could bankrupt you. In 2021, 32 percent of Americans claimed they hadn’t saved enough to handle even a $400 emergency. That amount is the low end of most emergencies.The result is that it could force you to use credit cards and increase revolving debt. Or, if you own a home, you might be tempted to tap into the equity. Both are expensive money and should be avoided.
Instead, use the “pay yourself first” method and set money aside before you spend your monthly check. It’ll be there if there’s an emergency. If you’re fortunate, it will be there for retirement.
9) Failing to Monitor Credit Scores
If you want to be credit ready, monitor your credit score. The main reason is to see how you’re spending affects your score. Taking out that credit card, buying a home, overextending your credit, etc., all have an effect.Fraudulent activity can also be detected quickly if you are monitoring the score. It’s easier to deal with it early on than when it’s a complicated financial mess.
Ultimately, you’ll keep yourself credit ready if you monitor your score.
10) Using Retirement to Pay Debt
It’s hard to pay back retirement funds even with the best intentions. But when your credit card interest is running at 18 percent and your fund is earning s7 percent, borrowing from it looks tempting.But keep in mind you lose compounding when you take from the fund; this makes it even harder to pay it back. You also might be hit with large fees.
11) Paying the Wrong Debt First
Some people will try to pay their low-interest mortgage off early. The best course of action is to pay high-interest debt. Pay the debt that’s affecting your credit score first. Analyze what debt is hurting you the most and establish a plan. If need be, consolidate.It helps from a psychological perspective if you pay off the smallest debt and than move on to the bigger one.
Recognize Financial Pitfalls
Many of these mistakes are fixable or can be avoided. Monitoring a credit score or investment fees may take some time, but each is simple to do.The tough one may be not taking money from retirement to pay for college or moving out of the family home. Take the time to evaluate where you are and adjust according to your needs.
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
