All of us are guilty of a few bad financial habits, but it’s easy to overlook the true expense impact of each one. However, the combination of multiple of these poor habits over time could lead to bigger problems.
The good news is that some of the most frequently made missteps are also the most preventable – and easiest to rectify, according to Bryan Armentor, Vice President with Lakeside Bank. “Finance-related resolutions are among the most common each year. Instead of just making a broad resolution to ‘save more,’ or ‘pay down debt,’ why not shift that focus to more specific goals that will eliminate some money mistakes. These mistakes may be preventing you from reaching those bigger financial goals.”
Armentor provides the following examples of common financial mistakes and steps to take to avoid them:
Paying late fees. Late fees not only add to expenses, these can also negatively impact your credit score. Many people pay late fees simply because they forget the due date, not because they don’t have the money to pay them. Technology has made this an easy fix. Set up automatic payments with the lender or with your bank’s online banking system.
Recurring payments. Some bills, such as your insurance premium or an online subscription, for example, allow you to choose between making one big annual payment or a series of installments. In many cases, the monthly or quarterly options include a service charge. It may be just $5, but that adds up to $20 to $60 annually and much more over multiple expenses and annual year. Check on the options and pay annually if you can and prevent that service fee.
Borrowing to buy things that lose value. A good debt is something that will help you build wealth over time, such as a loan to go back to school or a home mortgage. Bad debt is the kind that you accumulate by financing purchases things like vehicles, furniture, appliances, technology – things that quickly lose value. Paying interest means getting hit twice, first by the value loss and then by finance charges. Use cash whenever possible, and if you do finance, pay off as quickly as possible. One good way to do this is to pay extra toward the principle with every monthly payment.
Carrying credit card debt. This has become such a widespread habit that many people don’t even think twice about having a stack of credit card bills to pay each month. It’s a big mistake to use a credit card for everyday items such as groceries, clothing or gas if you are not going to pay the full balance off right away. You’ll end up paying way more than these items are worth in interest fees over time. Other tips: shop around for low-interest-rate cards, don't carry a lot of credit cards with you and restrict credit card use for emergency situations.
Being careless with your financial information. Identity theft is rampant, so protect your personal identification information in all situations. You should not carry your social security number, ATM passwords, bank account numbers, credit card numbers, or any other personal, financial information with you, or within an easily accessible device such as a laptop, iPad, or smart phone. Those numbers are all a thief needs to access your account and steal not only your money, but your identity, which enables them to do far more damage to your finances if they secure additional credit in your name.
Not having a plan. Many people procrastinate when it comes to finances, but study after study has found that planning is associated with wealth accumulation. Develop a plan for budgeting, credit use, and for saving money for emergencies and other long-term goals, and you are much more likely to be successful.
Paying full price. This can be a big drain on your finances. In today’s digital age there are many tools available to help consumers make better buying decisions. The asking price is rarely what you have to pay when it comes to many goods, and especially services. If you aren’t inquiring about discounts, researching coupons, checking sales promotions, cash discounts or negotiating for a better price, you won’t get them.
Not checking your credit score. Potential lenders could have a much different picture of you than you think, and if they erroneously think you’re high-risk, they’ll charge you more to borrow. Checking your credit report is a simple process: Request a free credit report online from one of the three credit rating agencies — Equifax, Experian, or Transunion. Each is required to provide you with a free report once a year. Flag any errors or unexpected changes to your report and file any discrepancies to the credit rating agencies. A few months later, check again using another of the agencies to make sure any mistakes have been corrected.
Saving whatever is left at the end of the month. If you do that, don’t be surprised when there isn’t anything left to save. Instead, have your savings automatically set aside before you even have a chance to spend it. The easiest way to do that is in your employer’s retirement plan if this option is available. The same is true for medical expenses and dependent care if you’re eligible for an FSA (flexible spending account) or HSA (health savings account). You can also have money automatically transferred from your checking account to savings or investment accounts.
Wasting a windfall. Getting a big lump sum of money is exciting, and all too easy to view this as extra spending money. Many people get this opportunity every year with tax refunds, inheritances, year-end bonus or any unexpected lump sum of money. If you’re lucky enough to be in this situation, don’t make an impulsive purchase. Use this as an opportunity to pay down debt or build up your savings.
“Mistakes like these can derail the plans you have for your money – and your future,” says Armentor. “It takes care and discipline to achieve your financial goals; don’t put your plans for your future at risk because of poor money habits today.”