From spending too much to saving too little, we’re probably all guilty of making a financial misstep here and there.
But here’s the good thing about mistakes: they can be avoided. Now that we’re in 2020 (🤯), take a look at these common financial snafus we want to help you steer clear of in the new year.
Maxing out your credit cards
Just because you have a super high credit limit doesn’t mean you have to spend it all.
Using all your available credit is a surefire way to end up in a financial bind if you don’t have the means to repay that balance as soon as possible. Making minimum monthly payments on a high balance won’t help much either because you’ll get hit with the bank’s variable interest rate. That just makes your balance harder to pay off and can easily lead you into a cycle of debt. Plus, spending your entire credit limit increases your credit utilization, which can severely damage your credit score.
We recommend not treating your credit like cash and disciplining yourself to keep your credit utilization low, like at about 30 percent. Using your credit card often and responsibly will help you boost your score as long as you charge amounts you can easily repay.
Buying on impulse
Let’s say you’re scrolling along your social media feed, minding other people’s business, when you see an ad for $400 bluetooth speakers. They’re nice — real nice — and you’ve wanted a pair for months.
You might be tempted to make the purchase, especially if you have some wiggle room in your savings or on your credit card. But, do you need them?
Buying high-ticket items on a whim, without a plan, can put a strain on your bank account. Try curbing those impromptu purchases by creating a budget, shopping with a plan, avoiding online shopping sites and choosing not to spend money when your emotions are high (whether good or bad). Stop yourself from hitting “Buy” and take a night to mull the purchase. If you can live without the item you’re ogling, then you might not need to spend money on it after all.
Choosing to spend, not save
Plenty of people struggle to save money. A study from Career Builder shows that 78% of American workers live paycheck to paycheck to make ends meet, including those making $100,000-plus a year. Most Americans don’t have enough money to deal with a $400 emergency.
But that’s not everyone’s story. If you’re fortunate enough to have money left over every pay period – or you work a job offering raises and bonuses – consider stowing away some of that extra cash instead of spending it. Try saving your annual tax refund and using apps that help you save and invest spare change from your purchases. Open a savings account that yields high returns (check this list to find some of the best).
Depending on your financial goals, how you approach saving will differ from how other people do it. Some save a small percentage of their paycheck each month; others throw in half of what they earn. Figure out what works for you, even if you have to start small.
Spending without a budget
We talked about planning a little earlier, but we can’t stress enough the importance of budgeting. Making a budget doesn’t mean you can never spend money on things you enjoy. It’s simply a plan that keeps your spending in check. Think of it as a safety net that helps you avoid mistakes.
A budget gives you a snapshot of your overall financial habits and shows you where most of your money is going. That way, you can make adjustments if you realize you spend way too much on streaming services and not enough on groceries, which can help you cut back on eating out a lot. That’s just one example. Here’s a helpful resource for how to create and, most importantly, stick to a budget.
Believing the fear-mongers
Financial scammers are unrelenting and tricky. They’ll use an array of tactics to scare people into sending them money or sharing sensitive personal information (we wrote about them here).
Fear is one of their most effective strategies, but it doesn’t have to trap you. If someone demands that you send them money, it’s a scam. Likewise, if someone asks you to wire them money fast, claims your relative’s in jail or says your Social Security number will be suspended, it’s also probably a scam. Think twice before giving money to someone who’s threatening you and don’t make the mistake of believing a word they say.
Here’s a useful primer on scams and ways you can avoid them.