There are some financial mistakes we tend to make more than others and sometimes we may not even realize we are making them. I’ve made many myself over the years and it’s pretty embarrassing but I’ll share my biggest financial mistake.
A few years ago, as a young and financially-dumb 23-year old, I left my first big-girl job. While I was there, I had been investing in a 401k. To be quite honest, I really had no idea what a 401k was at the time other than a way to save money for retirement. After I left, I decided to withdraw all the money in my 401k, which incurred me a hefty penalty (more than 30% of the balance in fact). My only excuse? Financial stupidity!
Don’t let something like this happen to you. Financial mistakes like these are all too common. And when they happen, they are costly.
I’ve compiled a list of five of the most common financial mistakes so that you can hopefully avoid them.
1. Living on credit cards
One of biggest problems Americans face is credit card debt. It’s easy to just swipe your card to buy everyday basics. But don’t forget that if you’re not paying your full credit card bill every month, you’re going to face very large interest fees.
Don’t make it a habit to live on credit. It’s a vicious cycle that can lead to fees on top of fees and a lifetime of debt payments. Live below your means and you won’t have to live on credit.
2. Not checking your credit score
Identity theft is a very scary situation to face. Unfortunately, if it does happen, you might not even immediately realize it. Aside from keeping your personal information secure, you should also always check your credit report every year.
As required by the federal government, you’re entitled to one free credit report every year. You can learn more about obtaining your completely free credit report by going to AnnualCreditReport.com.
3. Buying a house you can’t afford
Buying your very first home is a very exciting time in your life. But it can also be a huge mistake if you don’t think it through. Many people buy a bigger home than they can afford, which can put an incredible stress on one’s financial situation.
If you’re buying your first home, bigger is not always better. Be practical when purchasing a home. You can always upgrade later if you need to.
If buying is the best option for you, find a home that will fit your needs without driving you to foreclosure. Keep in mind; bigger homes also come with more expenses such as utilities and maintenance. You’ll also spend more time maintaining the house.
4. Investing your money in one place
While it’s great that you’re investing money into your future, you should also be thinking about how to diversify your investments.
For example; if you invested everything in one stock and that particular stock took a plummet, you’d face a significant loss.
You don’t want to put all your eggs in one basket, so to speak. Your ideal investment portfolio will depend on your financial situation and how much risk you’re taking. Be mindful of diversifying your portfolio with both high and low risk investments.
5. Not planning ahead
The biggest trap many of us fall into is the one that’s actually the easiest to avoid. Many people don’t plan ahead financially. A great example of this is saving for retirement.
The earlier you start investing, the more money you’ll have in retirement. However, many of us don’t even think about retirement until we’re well into our 40s. Similarly, we don’t even consider things like life insurance, long-term care insurance, disability insurance, and the like.
Will your family be OK if something happens? It’s tough to think about things like these but you have to. You never know what could happen.
Are you guilty of one of these financial mistakes? What has been your biggest money blunder in your life?
{ read the comments below or add one }
While saving is always best practice. There are few in this economic disaster that are able to do so while oaying for the basic day to day living expenses required for a family. How about some suggestions how to save in this situation? There are many who make to much to get assistance unless they quit their jobs. They also have been raised to work and pay bills.
I spent way too much on my house. I kind of regret having such a huge house payment now. I could do a lot more financially if I didn’t have such a big house payment (to make on my one income).
These are all very common tips but also tips that many unfortunately do not follow. Checking credit report/score should be a must in January to prep any credit needs later in the year.
In our area (Boston) we’re seeing a lot of friends buying more house than they should. I think people feel like they were left out of the appreciation of the past couple of years and are now feeling a bit desperate.
I know several folks who are certainly “reaching” to pay their monthly mortgage, with the thought that they’ll eventually get raises and the property will appreciate. And maybe they will… but it’s a risky strategy.