Money Mistakes You Could Be Making
If you’re like most people, you find it very difficult to save money. No matter how much more you make, or how much you cut back on expenses, you’re still struggling to have any left over for your retirement. There could be a number of reasons for this, but many of them boil down to simple money mistakes that people make.
It’s estimated that a quarter of consumers have lost $30,000 or more due to simple errors in financial judgment. How can you steer clear of these errors? The first step is to be aware of them. Here are four common money mistakes and how to avoid them.
- Dipping Into Your 401(k) Early. You never know when a financial emergency will arise. A plumbing leak causes thousands of dollars in water damage to your house. Your old car finally gives up the ghost, and you need a new one in order to get to work. You or a loved one needs an expensive medical procedure, and even if it’s covered by insurance, there’s still a significant deductible. How can you cover these expenses? For a lot of people, their first instinct is to cash out part or all of their 401(k). But this is just robbing Peter to pay Paul. The money you take out now will mean less money you have to live on once you retire. And you not only lose the amount you take out, but all the interest it would have accrued over time as well, which can amount to tens of thousands of dollars more. No matter what the emergency is, leave your retirement account alone until you’re ready to retire. Otherwise, you’re just trading it in for another financial emergency down the line.
- Not Paying Attention to Investment Fees. Do you have someone who manages your retirement account for you, and the investments that your money goes to? If so, what are you paying that person for their services? You don’t write them a monthly check, but instead a percentage is taken out of your account for the various services they provide. Sometimes there may be quite a number of different fees tacked onto your account. They seem small—possibly just 1% or less—but remember, that money adds up over time, and can lead to losses of tens or even hundreds of thousands of dollars. Look carefully at the fees you’re paying on your account and do some research to see how they compare to what other investment firms charge.
- Taking Out Too Many Student Loans. It’s become a fact of life that the average person can’t afford to pay for a four-year college, much less a graduate program, without borrowing at least some money. This is unfortunate, but not in and of itself a money mistake, as it often can’t be avoided. Rather, the mistake comes when you end up borrowing more than you actually need. Many people don’t take full advantage of the grants, scholarships, and work study programs that are available to them, which could greatly reduce the amount they need to take out. As a result, they stay in debt longer and pay more in interest, which in turn causes them to delay starting to save for retirement.
- Not Checking Your Credit Score Regularly. What’s your credit score right now? Chances are, you don’t know. But you should. If someone steals your identity, committing credit card fraud in your name, it would behoove you to find out as soon as possible—and often the only way to do that is by looking at your credit report. Even if you aren’t a victim of fraud, keeping regular track of your score helps you understand why it is what it is, and gives you more opportunity to improve it. And a better credit score can help you get a better mortgage rate and other breaks on significant purchases, which can save you a huge amount of money over time. Look at your credit report regularly and figure out exactly what needs to be done to get it to optimum levels.
These few simple mistakes can cost you vast amounts of money over many years. But if you can recognize and avoid them, it may save you thousands or more. You’ll have a much easier time saving, and your nest egg will build and expand over time. It just takes a little planning and a little initiative.