Throughout our lives we will always make mistakes. Some are not too bad, others devastating, but regardless we learn from them. When it comes to your money, it is important to take the time to learn from other people’s mistakes. You can see what they did wrong, and make sure you do not do the same. While there are more than 5 mistakes out there, you can save yourself a lot of worry by making sure you do not make these ones.
Ignoring Your Credit
Not knowing your credit score, or not taking the time to review it annually, is one of the worst mistakes a person can make. In the past your score was just used if you needed to get a loan. Now it is used in everything. In fact, there are times you can be denied insurance, or have to pay a higher premium if you have an unfavorable score. Head over to Credit Sesame and check your report. This is the only government approved site to check your credit report from all three reporting agencies. Want to know more about how having good credit helps you? Check out Ramit Sethi’s blog on why maintaining your credit is important.
Chasing Returns
Most of us have switched bank accounts at one point or another. The reason is often that a new account is offering a little better interest rate. While it is good to go with a trusted company that offers the best rate, it is unreasonable to start a whole new account because you can get half a percent higher at another bank. Even if you have $50,000 in your account, that half a percent will only get you about $20 extra per month in interest. Save the hassle and keep what you have.
Carrying a Credit Card Balance
There are times when emergencies pop up and you have to put things on your credit card. And there are times that you cannot pay it off in full at the end of every month. But if you are consistently using your card and carrying a balance, you might as well be throwing your money away. Most cards charge a borderline usurious rate of at least 10%-15%. If you have credit card debt, take the drastic measures needed to get it paid off as soon as possible. One way to help the process is by transferring any balances over to a 0% balance transfer credit card.
Failing To Have An Emergency Fund
If you need to carry a balance on your credit card during emergencies it is probably because you do not have an emergency fund. With all the literature out there about keeping a fund set up for emergencies and opportunities, you are making one of the most rookie mistakes if you do not have one. There is no reason you cannot set aside $25 or more per month (to begin with) to start this fund.
Impulse Investing
Much like impulse buying, impulse investing rarely ends well. Take your time to do some research before investing in an unknown company. If someone tells you it is a limited time offer, or you have to act now to get these rates or deals, then you should know it is most likely a scam. Personally I have invested on impulse, and I lost 100% of my investment.
Smart money management comes with time and knowledge. Unfortunately many people do not take the time to gain that knowledge and make foolish mistakes along the way. You have probably spent at most 5 minutes reading this article. You are now better educated than 90% of Americans. Spend a little more time and check your credit score now, and make sure you are safeguarding against making these same mistakes.
These are pretty big mistakes. Ignoring your credit could cost you tens to hundreds of thousand dollars of extra cost over a lifetime easily.
Great tips Sean! I agree that many don’t take the time to gain the knowledge needed to avoid mistakes. The thing is that many of the things you covered don’t require that much time to educate oneself.
Whew, people that chase returns annoy the crap out of me. It’s difficult being a financial advisor and coaching people on how to properly invest. It’s certainly not easy…even with people that have just enough money to secure their retirement and accomplish their goals!
I agree Jason. I work for an advisory firm it it gets frustrating with some clients that are always wanting to buy the next hot stock. It doesn’t matter how much we tell them nor how much research we show him that he is better off not chasing returns.
I’m guilty of ignoring my credit. If you were to ask me what my credit score is or whether I even have “good” credit, I wouldn’t be able to answer that! I read over credit sesame’s terms of use and it looks like a loan recommendation program that also gives you a credit score. However, it doesn’t seem to be clear whether this is a score pulled from your credit agencies or something they compile on their own. Sean, can you clarify this?
They get your credit score from Experian. While it’s not going to be 100% accurate because they are not getting all three reporting agencies, it still gives you a good idea plus it’s free.
Very important to pay attention to your credit. It’s a huge factor when getting a mortgage or other loans. Good tips.
I have had an emergency fund for a few years now, but I wish I had started one as soon as I got my first professional job. I was still living at home at the time and not paying rent, so I could have easily set aside a couple hundred dollars a month. I guess I was relishing the newfound feeling of being a young professional rather than a starving student.
Chasing returns is certainly a losing battle. You are much better off buying and holding index mutual funds. Studies show that the average investor earns much less than the stated average return because they buy and sell at the wrong time; they let emotion to enter into the mix. Work on keeping emotion out of investing and you will increase your returns.