50 Financial Mistakes That Can Become Big Money Leaks
50 Financial Mistakes that Can Become Big Money Leaks
Are you always short of cash at the end of the month or between pay checks? Do you take cash advances on your credit cards to cover daily living expenses such as groceries, a tank of gas, or medical copays? Do you pay late fees on your mortgage, utilities, or taxes? If you answered yes to any of these questions, you could be in the midst of a financial crisis. Frequently, cash flow problems occur because you have wittingly or unwittingly mismanaged your financial portfolio. Here are 50 financial mistakes that can become big money leaks.
General Money Management:
1. Making financial decisions when you are angry, lonely, tired, or depressed.
2. Waiting until the last minute to do your income taxes, holiday shopping, etc. Did you know that taxpayers who file their returns early make fewer mistakes than those who wait until the last minute?
3. Refusing to pay for additional education and training today for a bigger paycheck tomorrow.
4. Not wanting to improve your credit score. Having a good credit score can save you thousands of dollars on everything from a mortgage to a car loan.
5. Having a 401(k) and not contributing enough to receive your employer’s matching contribution (a.k.a. free money). The average match is 50 cents on the dollar and up to 6% of your salary.
6. Starting to collect Social Security benefits too early. According to the Social Security Administration, a benefit is reduced 5/9 of one percent for each month before the normal retirement age of 67, up to 36 months. For example, if you retire at age 62, you will only receive 75% of your full monthly benefit. If you retire at age 65, you will receive 93% of your full benefit amount. If you retire at age 67, you will receive your full benefit amount.
7. Not teaching your children about financial responsibility. If you don’t want to end up supporting your adult children financially, take some time now and teach them how to spend money wisely, constructively, and judiciously.
1. Making only the minimum monthly payments on your credit card(s).
Suppose you have $25,000 of credit card debt with a 21% APR. Assuming that you make no additional purchases or cash advances with the card(s), it will take you 120 months (that’s ten years) to become debt free if you make a minimum monthly payment of $500. You will pay $34,931 in interest and a total of $59,931 (principal + interest). Let’s summarize:
- Minimum monthly payment: $500
- Number of months to get out of debt: 120
- Amount of principal paid: $25,000
- Amount of interest paid: $34,931
- Total amount paid: $59,931
By simply increasing your monthly payment from $500 to $600, you will become debt free 44 months sooner and save $14,753.00 in interest. Summarizing:
- Monthly payment: $600
- Number of months to get out of debt: 76
- Amount of principal paid: $25,000
- Amount of interest paid: $20,178
- Total amount paid: $45,178
- Net savings: $14,753
Here is another example:
Suppose you have $15,000 of credit card debt with a 24% APR. Assuming that you make no additional purchases or cash advances with the card(s), it will take you 99 months to become debt free if you make a minimum monthly payment of $350. You will pay $19,394 in interest and a total of $34,394 (principal + interest). Let’s summarize:
- Minimum monthly payment: $350
- Number of months to get out of debt: 99
- Amount of principal paid: $15,000
- Amount of interest paid: $19,394
- Total amount paid: $34,394
By simply increasing your monthly payment from $350 to $500, you will become debt free 52 months sooner and save $11,257.00 in interest. Summarizing:
- Monthly payment: $500
- Number of months to get out of debt: 47
- Amount of principal paid: $15,000
- Amount of interest paid: $8,137
- Total amount paid: $23,137
- Net savings: $11,257,00
2. Making purchases on your card(s) just to get rewards points.
3. Making late payments or missing payments altogether. The consequences for late payments include late fees, over-the-limit fees, higher interest rates, and lower credit scores.
To ensure timely processing of your credit card payments, pay your credit card bill online or by phone instead of by snail mail. You also get immediate confirmation of your payment whether it is done online or by phone.
4. Allowing someone else to use your credit card. Never loan your card to a third-party unless you are willing to pay for all of the purchases and cash advances they make. By the same token, never co-sign a credit card unless you have money to lose.
5. Ignoring monthly statements. Remember that unfamiliar charges on a credit card statement could mean identity theft. Therefore, take a few minutes every month and look over each of your credit card statements. An ounce of prevention is always worth a pound of cure.
6. Not asking your bank for a lower APR. Business.HighBeam.com tells us that rising delinquencies and default rates have made credit card issuers more inclined to cut deals with their cardholders. You might be able to lower your interest rate or monthly payment, get penalties waived, or even reach a settlement for substantially less than what you now owe.
7. Not treating credit cards the same as cash.
8. Using a credit card to pay for home improvements, college tuition, vacations, medical bills, wedding expenses, cosmetic surgery, a trip to the casino, or taxes.
9. Using credit cards to pay for everyday expenses such as groceries, gasoline, and the morning latte. Likewise, taking a cash advance on one credit card to make the minimum monthly payment on another.
10. Not reading the fine print when considering a balance transfer. Kiplinger.com advises:
Moving debt from a high-interest-rate card to one with a low introductory rate can make financial sense -- but only if you read the fine print. If you ignore or misunderstand balance-transfer rules, you could end up owing even more. Start by determining exactly how long the introductory offer lasts. Then ask yourself whether you have the discipline and means to pay off the debt before the APR goes up. Otherwise, you could find yourself eventually paying a higher interest rate.
11. Neglecting your credit scores. Did you know that five major factors impact a FICO score simultaneously?
Payment history (35%) - This is probably the most important factor of all.
Amounts owed (30%)
Length of credit history (15%)
New credit (10%)
Types of credit used (10%)
All that it takes is a poor showing in one of these categories and your score can drop.
12. Using credit cards to supplement your income.
Irresponsible Spending Habits
1. Buying things for instant gratification or to impress others. For example, do you really need a $69.95 turkey platter, a $299 espresso maker, or a $699 smartphone?
2. Allowing commercials or infomercials to influence your spending habits.
3. Smoking cigarettes. For example, if you spend $7.50 every day on a pack of cigarettes, that adds up to $2,737.50 annually.
4. Spending $5.00 every day on lottery tickets. That adds up to $1,825.00 a year.
5. Buying books that you will never read.
6. Subscribing to newspapers and magazines that you never have time to read.
7. Spending $3.50 every day for a latte. That adds up to $1,242.50 a year.
8. Spending $8.99 on a bunch of fresh flowers every week. That adds up to $467.48 annually.
9. Not signing up with every customer rewards program that comes your way.
10. Paying for 100 cable channels you never watch.
11. Using a check cashing store instead of a brick-and-mortar or online bank.
12. Paying a $35 overdraft fee on your checking account.
13. Paying a monthly maintenance charge on your checking account. If you pay a monthly service fee of $9.95, that adds up to $119.40 annually.
14. Getting cash at an out-of-network ATM and paying $7.00 in combined service charges to your bank and the out-of-network bank. If you make this financial blunder 50 times a year, you will end up paying $350 in bank fees.
15. Spending $6.99 for a Halloween DVD and only watching it once.
16. Spending $299 for a premium gym membership and rarely or never using it. Why not try Mother Nature instead?
17. Doing half loads of laundry every day and wondering why your utility bills are so high.
18. Spending $199.99 on a pair of designer sunglasses.
19. Having power tools in your garage that you rarely or never use.
20. Spending $2.50 every day for a blueberry muffin. That adds up to $912.50 annually.
21. If you’re a guy, how much do pay for a haircut? If you live in Pittsburgh, you can pay as little as $20 for a trim at Enrico’s or as much as $50 (plus tip) at a pretentious downtown salon.
22. Spending $35 on a pedicure every week. That adds up to $1,820 a year.
23. Spending $29.99 on a bottle of hair conditioner because your stylist claims that it will make your hair look five times thicker.
24. Buying a certain brand of perfume or cologne because the advertiser claims that it will attract the opposite sex.
25. Spending $89 on the latest miracle diet. If the last diet didn't work, why should this one?
26. Buying the latest miracle eye cream because the advertiser claimers that it will make you look 10 years younger.
27. Spending too much time on the shopping channel instead of cleaning the house, doing the laundry, or mowing the lawn.
28. Not checking to see if your meter and utility bill match.
29. Not using budget payment plans with your gas and electric bills. Budget plans allow you to take control of your expenses and avoid the surprise of seasonally high bills.
30. Paying late fees on your gas, electric, water, cell phone, cable and ISP bills. If you still pay your bills by snail mail, allow plenty of time for the payments to reach their destinations.
31. If you've been eating out more than twice a week, consider eating out just once a week, once every two weeks, or even once a month. You will appreciate eating out more and be amazed at how much money you can save.
Questions & Answers
© 2017 Gregory DeVictor