10 Money Habits to Kick
Some people tend to make the same mistakes over and over again in their financial lives. Here are 10 of the most common errors and a better way to handle each situation.
Spending without a budget. Many times, when people think of financial planning, they only think of investments and savings. But if you have income and bills, you need a budget. Instead of spending as you go, keep track of what you spend to get an idea of where your money is going. They key is to account for all the little things that aren't regular bills--groceries, entertainment, etc.
Carrying a balance on credit cards. Interest rates on credit cards can be 18% to 21% or more. If you make the minimum payments, you will never pay the card off. Another way to think of it is: treat yourself to a nice dinner on your credit card, and you will still by paying it of 20 years from now. Try paying balances in full every month. If you need to use a credit card to handle an emergency, use it, then stop using credit until you have that bill paid.
Ignoring interest rates. Whether it's your money market rate or a great rate on a mortgage refinance, it pays to keep up with the current prices of borrowing and lending. Stay ahead of the trends that affect your accounts and you could save money with a lower interest rate or gain with a higher percentage on investments.
Not investigating disability insurance. More than 20 million people sustained disabling injuries in 2002, according to the National Safety Council. Disability insurance could mean the difference between cutting back on a few expenses while you get back on your feet, or moving in with family and friends. Find out if your employer offers any kind of plan. If not, do you have the savings to sustain yourself for a couple of months if you couldn't work?
Not realizing that little purchases add up. If you're like most people, little purchases, like a vending machine snack or a morning latte really take a chunk out of your paycheck. Take the records of your purchases and ask where you are spending that money and does it make sense?
Not taking advantage of an employer match for retirement funds. One of the biggest mistakes that lots of people make is not investing in their employer's retirement plan at least up to the point where they get the matched funds. Figure out how much you can afford to contribute and have the money taken out of your check.
Waiting until the last minute to fund your IRA. A lot of people wait until April instead of setting aside money throughout the year. Put away a certain amount regularly until you hit the contribution limit, and you will be in for a more comfortable retirement.
Paying everyone else and then saving "what's left". If all you have saved is scraps here and there, then that is what you will have at retirement. Pay yourself first, so that you have enough money to retire on. The reality is that saving in a 401(k) is not going to be enough to retire on, unless you supplement your savings with an IRA or other account.
Not managing your investments. Look at your investments like the pieces of a puzzle. You want to diversify your investments so that your portfolio can meet your expectations.
Getting emotional about your investments. People fall in love with their investments and hang on to them too long. The smart thing to do is to invest in a very diversified way. It isn't easy, but it works.
