There’s no question finances can be complicated. No matter how well-trained or educated you are in this space, you are bound to make a money mistake or two. In fact, financial mistakes are very common and almost expected in today’s money-centric world.
That said, a lot of people actually don’t know when they’re making those mistakes. Keep reading to discover what mistakes you’re making with your finances that you may not be realizing.
1. Failing to Monitor and Manage Your Credit
Credit scores can be a confusing topic, and are often overlooked, ignored, or misunderstood. Think of your credit score as your key to unlocking mortgages and loans. If you want to buy a home, for example, your loan will be dependent on your current credit score.
The higher your credit score, the better chance you have of qualifying for a loan. Scores are based on you paying bills on time, unpaid debt, and loan account balances.
Ignoring your credit score can hurt your future financial health. It’s important to build good credit and continue to monitor your score. A credit builder card is a great way to start building credit for free on everyday purchases, services, and expenses.
Because your credit limit is determined by an initial deposit or funds transfer, this type of card helps limit the amount you spend. This can ensure you don’t run into unnecessary debt. It’s easier and safer to build credit this way than with a credit card that has unlimited spending!
Once you’ve built up your credit, you’ll want to manage it. To do so, you can request access to your credit score from the three credit reporting agencies: Equifax, TransUnion, and Experian. Your credit score will fluctuate, so don’t be alarmed to see a change.
If you notice a dramatic increase or decrease, it is worth looking into. You are entitled to a free report annually, which can be used to monitor your score on a yearly basis.
2. Failing to Utilize All of Your Financial Benefits
Another mistake is forgetting what types of financial resources you have available to you. Remember your first day of work at your current employer? You were likely bombarded with a million resources, one of which was your comprehensive benefits package. This package includes valuable financial benefits including a 401(k) and life insurance that shouldn’t be overlooked.
If you are a full-time employee, chances are your company offers a 401(k) plan. This is a retirement savings plan offered by employers as an additional benefit to their employees.
If you elect into the plan, you contribute a percentage of your monthly paycheck into it. This money builds up over time and is frequently matched by the employer. Ask your HR representative about the 401(k) plan and what percentage the employer matches or contributes.
Similarly, make sure you are enrolled in your company’s life insurance policy and have identified a beneficiary. Doing so is another checkpoint for your future financial health.
Having a designated beneficiary means your well-earned finances will be given to those you love and care about. Again, talk with your HR representative and family about who makes the most sense to name as a beneficiary. You’ll feel confident that your money is going to go into the best hands.
3. Neglecting to Save for Emergencies
Nobody likes to think about worst-case scenarios. But especially in today’s unpredictable world, it’s important to have a plan if the worst does happen. The size of your emergency fund will depend on your personal situation including your monthly costs, income, and lifestyle. In general, however, experts recommend saving up to eight months of living expenses.
To figure out how much you need to allocate to your emergency fund, take a look at your current expenses. How much is your rent or mortgage? How much do you spend on food per month? How much is going to debt payments or school loans? Take all of this into account when setting aside your emergency fund.
Once you have a number in mind, build toward it. Create a practical, reliable system so you can easily make consistent contributions to it. This could be allocating a certain portion of your income each month to this new fund. Or it could be reallocating money from unused subscription services into it. However you decide to build the fund, do so consistently and monitor your progress monthly.
Takeaway
Finances are tricky. And it isn’t helpful that there are mixed opinions on how to save and how to spend. Because of this, there are plenty of opportunities to make some financial mistakes. Knowing the pitfalls can help you avoid mistakes from happening in the first place.
Building and managing your credit score can help secure your financial positioning. Contributing to your 401(k) and setting up a beneficiary for your life insurance ensures your future is in good hands. Lastly, creating an emergency fund provides you and your family with peace of mind during unforeseen circumstances. Try not to get overwhelmed about your finances. Instead, be practical and purposeful when it comes to your spending and saving.