Everyone makes mistakes with their money from time to time. If you are breathing then that probablymeans that you have messed up somewhere along the line. Here are 7 common mistakes that many people make.
1. Losing the interest rate exchange
What many people do without even thinking is put their money in a savings account that they are making perhaps 1% interest or if it is a money market account or a CD and it’s a really good one maybe 3%. Then they turn around and charge a bunch of purchases on their credit card at 12-18% interest or more. What they have done is given the bank their money and then the bank turned around and gave them the money back and charged then 15% or more difference for the privilege.
Nothing wrong with saving, though if it’s for the long-term it should be in something earning a little more. But when making purchases, use cash! You won’t be losing on the deal.
2. Not letting someone else enjoy the depreciation
Most new cars lose close to 75% of their value in the first 4 years. Let someone else take that hit. You can find a good high quality used vehicle for $8,000-12,000 that will be comfortable and serve you for years. Instead many folks have a car payment their entire lives, trading in their car for another new one every 4-5 years. The average new car payment is about $450. If you invested that money from the age of 20 to the age of 65 at a very conservative 8% (The market traditionally has done close to 12% over the long haul) when you were ready to retire you would have $2,394,697.
3. Not taking free money
If your company offers a 401K or other retirement savings vehicle and offers a match on a certain percent of what you put in, DO IT. This is free money. Even if the investment choices are not ideal, this is still like getting a 50-100% return on your investment. The only time I would advocate not taking advantage of this is for a very short period of time while you are working intensely to get out of debt.
4. Buying things you rarely need
Don’t buy things you rarely use. Buy a lawn mower you use once a week. Don’t buy that roto tiller that you use for about 2 hours once a year. Things like this are good candidates to rent. Or better still perhaps you have a neighbor that would let you use theirs in return for some service you could provide them.
5. Paying for a low deductible
You need insurance. Period. Insurance is there to protect you against losses that would be catastrophic to you financially. But insurance can be very expensive for something that you hope you rarely need. One way you can often significantly save on your premiums is by raising your deductible. With homeowners or auto insurance you are probably better off paying a small loss out-of-pocket as opposed to reporting anyway since a number of claims may negatively impact your rate. With health insurance using a high deductible plan with a health savings account may allow you to save significantly if you are fairly healthy. This is another important reason to have an emergency fund as it will help cover you in the event of an issue. Check with your insurance agent and get quotes, but you might be able to save a great deal on your overall insurance bill.
6. Getting nickel and dimed
“Pocket change” expenses when repeated often enough can add up to hundreds or thousands of dollars over the course of a year. The daily stop at the coffee shop, eating out everyday at lunch instead of at least occasionally packing your lunch, smoking, playing the lottery, etc. These expenses might seem like just a few dollars a week, but when you take that and multiply it over the course of a year, it can take a huge chunk out of your bank account.
7. Paying extra for brand names
You will often pay a significant premium for a label when the truth is the product inside is identical to a lesser brand. Try store brands. I have occasionally found a store brand that was of significantly lower quality but this has been by far the exception. Most of the time there is little discernible difference other than the price. Consider generics where available for drugs as well. The drugs are highly regulated. Only your wallet will likely see the difference.
Savings can be found
Small adjustments in your financial behavior can yield big results on your bank statement over time. Some of these could result in hundreds of dollars of savings. Some over the course of a lifetime could literally be millions of dollars.
Have you done any of these mistakes? I admit I have done most of them over the years.