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When it comes to your personal finances, most people have similar goals. They want to be financially stable and not have to worry about money. However, there are some common personal finance mistakes that you might be making that dramatically impact your financial health and cost you more money in the long run.
Most people don’t save nearly enough to cover emergencies or large purchases. You should have at least three to six months of your monthly expenses in an emergency fund. Ideally, you should be saving for your car purchase before you buy instead of financing your car for the next five years.
Without an emergency fund or savings for predictable future expenses, you’ll have to finance purchases or put them on a credit card. This costs you money in interest rates and can be stressful. Instead, plan on saving at least 10 percent of your take-home pay each month for a fully funded emergency fund and then toward other larger purchases.
It’s easy to spend money without thinking about it. On a boring afternoon, you head over to the local Target to see what they have in stock. You end up spending $80 for fun without even realizing it. Over time, these little side trips add up. Try to only go shopping when you actually need something and use a shopping list that you refuse to deviate from.
When you’re in your 20s and 30s, it’s common to prioritize your next pressing need, such as a car repair, instead of your retirement. It seems so many years away. However, not only will you end up not saving as much if you start later, you’ll lose the power of time and compounding interest. You’ll earn more money if you start saving for retirement earlier than if you saved the same amount of money later in life. At the very least, max out what your employer will match in your company-sponsored 401(k).
If you pay off your credit card in full every month, you avoid paying interest. Even so, using your credit card is an expensive habit. Research shows that you’ll spend more money by using a credit card instead of cash because with cash, you’ll actually feel the money and see it leaving your possession. Whenever possible, use cash so you’ll spend less overall.
Taking control of your money and spending is possible. You’ll be able to save more without feeling deprived. Using these tips can make it easier to avoid common mistakes that may cost you money.