Managing your finances is undeniably complicated. Unfortunately, mistakes you make when handling your money could end up being extremely costly. Avoiding errors that cost you a fortune is one of the keys to financial success and here are five of the biggest money mistakes you’ll need to be sure you avoid making.
Biggest Money Mistakes:
1. Paying a bill late:
Paying a bill late is one of the most damaging things that you can do to your credit score. A single late payment could drop your score between 60 and 110 points, depending where your score was before the late payment. This could mean the difference between getting approved for a loan and getting competitive interest rates, or either paying more to borrow or being denied a loan altogether.
The better your credit, the worse the impact of a late payment, so make sure you avoid this big error. Set your bills to autopay if you can, or at least set calendar and text reminders a few days before they’re due so you won’t make the mistake of paying your creditors late.
2. Getting into credit card debt and paying only the minimum balance:
Speaking of debt, getting into credit card debt is one of the worst things that you can do because credit card interest is notoriously high. In fact, the average APR on a credit card as of October 2018 is 17.07%, which is an all-time high.
You can’t afford to make all of your purchases so much more costly so avoid getting into credit card debt.
Don’t charge anything you can’t pay off when the statement comes due and pay off your bill as soon as it arrives. If you already have credit card debt, pay more than the minimums until it’s paid off and consider taking steps such as transferring the balance on your card using a 0% balance transfer offer so you can reduce your interest rate to 0% while you work on paying down your debt.
3. Buying a house you can’t afford:
For most people, the biggest debt they have is mortgage debt. While homeowners generally tend to be wealthier than renters because amassing equity in your home helps grow your net worth, your mortgage payment could also be a drag on your ability to accomplish other things if you borrow too much.
4. Waiting to save for retirement:
Failing to properly fund your retirement savings is one of the major money mistakes that could come back to haunt you at a time in your life when you’re too old and sick to work. It’s imperative you have enough money to help support you along with Social Security in your old age — and the sooner you start saving, the better off you’ll be.
If you start saving when you’re 20 and you want to become a millionaire by age 65, you’d need to save around $3,500 each year in a tax-deferred retirement account, assuming a 7% return on investments. But, if you waited a decade until age 30, you’d need to save around $7,250 — or more than double what you’d have needed to put aside if you started when you were younger.
By starting to save as soon as possible, you can make compound interest work for you. It’s much easier to amass the funds you need for retirement when time is on your side.
5. Failing to pay attention to investment fees:
One of the biggest mistakes investors make involves failing to pay attention to the impact that fees can have on their retirement savings. The amount of fees you pay for your 401(k) or for the investments you buy can make a huge difference in how much of a nest egg you ultimately end up with — so you can’t afford to ignore investing costs.
6. Avoiding money mistakes can help you become a financial success:
By avoiding the types of mistakes that hurt your credit score, cause you to pay high interest, or make it harder to save for the future, you’ll be well on your way to achieving greater financial success. The good news is, now you know the big errors to avoid, and these mistakes won’t cause your financial life to suffer.