Home > 2014 > Personal Finance

How to Avoid 12 Common Money Mistakes

Advertiser Disclosure Comments 0 Comments

Everybody messes up with money now and then. Ask anyone. If they’re honest, they’ll tell you their regrets. Maybe they moved their 401(k) savings into cash accounts after the stock market crashed in 2008, missing the market gains since then. Or maybe they bought a house they couldn’t afford. Or waited to start saving until age 40.

Mistake 1: Keeping Up With Friends

One of the fastest ways to get into money trouble is trying to match the lifestyle and possessions of people around you. Status matters to most of us. That’s the culture we live in. But playing when you can’t pay? That’s financial suicide. Genuinely successful people are more independent.

Better idea: Creating the life that fits you and you alone takes guts. Get your financial life under control by tracking your spending. And search the Internet to learn how to budget, save money, spend smart and invest for your future.

Mistake 2: Letting Indulgences Become Habits

You can rationalize a small luxury because it’s cheap. Spending $5 on haute coffee isn’t a bad splurge once in a while. But do it every day and that $5 treat is a $150-a-month expense — that’s $1,800 a year. Just for your daily cup of joe.

Better idea: Track your spending, daily or weekly if possible. It’s the hands-down best way to control it. A simple budget is easy to make and gratifying to use. By all means, treat yourself once in a while to a goodie you can afford, but then stop.

Mistake 3: Signing Up and Spacing Out

I gifted someone a six-month subscription to Netflix a while back. Many months after the six months had passed, I realized I’d forgotten to cancel it. For some merchants, the holy grail of business is customers who sign up for ongoing monthly charges. When you do, you may forget to cancel that extra tier of cable or phone service you no longer need or the free credit monitoring trial that starts charging your credit card after 30 days. These small charges mount up.

Better idea: Read bills carefully to spot services you no longer use. Call customer service at your phone and cable companies twice yearly to review your accounts for better deals or features you can drop.

Mistake 4: Buying a New Car

As soon as you leave the dealer’s lot with a new car, it depreciates 9%, according to Edmunds. A new car costing nearly $30,000 is worth $5,687 less in a year. New-car registration and insurance are pricier, too.

Better idea: Buy used. “These days, 100,000 miles is merely the halfway point for a lot of vehicles,” says Bankrate. In fact, some used cars are better than new ones. Save the money you’d have spent and put it to work. Hang onto your car and drive it free after it’s paid off.

Mistake 5: Buying Almost Anything Else New

Why pay a premium for new books, toys, clothes, cars, tools and sports gear when you can get them for a discount used?

Better idea: Before shopping retail for a new purchase, see what kinds of deals are available on used goods. You can often find furniture, jewelry, appliances and electronics that look and work as well as new for a sliver of the new price. Of course some things — mattresses, shoes, computers, video cameras and stuffed toys, for example – you should never buy used.

Mistake 6: Paying Interest on Credit Cards

If you are paying, for example, 20% interest on credit card balances while your savings are earning just 0.2%, you’ve got things upside down.

Better idea: Rates on credit card balances are insane. Why pay tens or even hundreds of dollars monthly to borrow when your savings are earning far less? If your job’s safe and you have some money in savings to spare, use it to pay off high-interest debt. Next, rebuild your savings and pay off the entire card balance every month. Never borrow money at those rates again. Before signing up for a credit card, comparison shop. Check competing savings account rates, too.

Mistake 7: Ignoring your Employer’s 401(k) Match

You’re throwing away free money if you aren’t claiming every dollar your employer will contribute to your retirement plan or 401(k).

Better idea: Never, ever turn down free money, not to mention that nice tax deduction you get by contributing to a traditional 401(k) plan. You’re allowed to pay as much as $17,500 a year into a tax-deferred retirement plan like a 401(k). Over 50? You can make an additional $5,500 in catch-up contributions. Think you can’t afford to put enough in to get the company’s matching funds? Think again. You can’t afford not to.

Mistake 8: Borrowing to Buy Stuff That Loses Value 

A new car may be your biggest depreciating purchase but there are plenty more. When you take a loan or use a credit card to buy toys – big-screen TVs, audio equipment, video and still cameras or high-end sports equipment like new skis and boots — you are undermining your financial health.

Better idea: Pledge to pay only cash for toys and bling, whether a snowboard or a dress for a special party. Consider dropping any expensive mindsets, too: “If you are an ‘early adopter’ of electronics like the new 3-D televisions, you are also paying too much for little more than bragging rights to your friends,” blogs Matt Breed at Money Crashers.

Mistake 9: Chasing Credit Card Rewards

This is a tough one. Capturing rewards points is like a game. It’s fun, especially if you are working toward a goal like a free trip. But you may be overspending.

Better idea: Beware of driving yourself into a financial ditch in pursuit of “savings.” The way out? Revisit your financial goals, remembering how much more important they are than chasing points. The bottom line: If you’re carrying a credit card balance, it’s time to cut up that card and pay it off.

Mistake 10: Living with No Emergency Fund

You’re walking a tightrope without a safety net when you have no emergency fund. Scary, huh? But 27% of Americans have no emergency savings at all.

Better idea: Build an emergency cushion to cover your net take-home pay for seven or eight months. For example, if you take home $4,000 a month after taxes, your emergency fund should be $32,000.

  • Treat this fund like any other bill; contribute to it every month.
  • Put your fund where it’s harder to access – maybe a savings account (not checking) at a bank you don’t use otherwise.
  • Keep saving. After you’ve fully funded your emergency account, use your extra cash to pay down debt or build up retirement or college savings.

Mistake 11: Letting Bank Fees Drain Your Accounts

You’ve worked hard for your money. You don’t want it going to bank fees for overdrafts, out-of-network ATMs and checking account maintenance.

Better idea: Keep a cash cushion in accounts to avoid overdrafts, switch to a bank that offers free checking, sign up for electronic alerts to stay on top of account balances, and get cash back when you use your debit card at the grocery store to avoid out-of-network ATMs.

Mistake 12: Raiding Your Retirement Savings

What a tempting pot of money your 401(k) can be, especially when an emergency strikes or you’re short of cash.

Better idea: Do all you can to avoid raiding your retirement savings. You’ve worked hard to get this far. Besides, it’ll cost you. Yes, you can borrow from your 401(k), but that means that money won’t be growing in your account. And the amount you borrowed will become due in full if you lose your job. When you change jobs, don’t cash out the account. You’ll pay a penalty and taxes. Ask your HR department for help rolling your savings into another tax-deferred account.

This post originally appeared on Money Talks News.

More from Money Talks News:

Image: moodboard

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team