Financial disasters - we all have made them, which resulted in some regret. The beginning of the year usually represents, for many of us, a time of resolution, new goals, or the "New Year, New You" mentality. To make this a year of financial success, it will take some planning and a shift in how you think about money. In this article, we identify the five biggest money mistakes people make during this time of the year and what you can do to avoid these pitfalls!
Summer Watson, MHS, PhD and Jen Fontanilla, Certified Money Coach (CMC) from a live show "The Life, Love and Money Show with Summer and Jen" shares five practical steps that will help you avert money mistakes and support your financial success!
Stay away from "Lifestyle Creep"
Many of us have done it - we get a raise and we make a little more money, but rather than trying to figure out how to pay down debt or how much more we can save and put away, we think about "What can I buy"? This is where the journey of living a more expensive lifestyle also known as "Lifestyle Creep" begins.
Take that extra money and prioritize your goals. Do you need to pay off some consumer debt? Are you putting away money for retirement? Do you have a healthy balance in your emergency fund? It may be tempting to tell yourself, "Well, I deserve this. I earned it. I can afford this now." Celebrate your milestones, but don't forget to make a money plan and prioritize your financial goals.
No emergency fund
A big lesson that the pandemic has taught us is how important it is to have an emergency fund.
Here's where you take your extra money and work towards building funds that will sustain six months or more of expenses. When you don't set cash aside, it will force you to find other expensive ways to sustain your lifestyle. This could lead to putting simple purchases on credit cards or taking out cash advances at high-interest rates. And, if you don't have a great credit score, this could cost you even more!
Consider taking any bonuses, tax refunds, or any money that is left over from your budget and put it into an emergency fund.
Paying the wrong debt first
With debt being one of the most stressful financial problems that people have, sometimes we don't know what we should pay off first. Are you aggressively trying to pay off your home and putting extra money towards your mortgage? Typically, a mortgage has a lower interest rate. However, you might first consider tackling consumer credit cards, which generally have a higher interest rate. Be strategic about the debt you are trying to pay off.
By getting rid of your debt, it will improve your credit score and free up money, which will allow you to put more money towards your other financial goals, such as savings and investments.
Not monitoring your credit
Sign up for a free credit monitoring service that alerts you of potential danger. Not paying attention to what is going on with your credit can wreak havoc on your financial situation. Plus, the time it takes to clean it up would be a major time suck. Protect your identity and assets and don't put yourself in a position of trying to clean the mess up after it's too late.
Not having insurance
Insurance is one of those things that we don't like to think about or pay for, but when we use it, we sure are happy it was in place! Not having insurance can be extremely costly. If you already have insurance for your auto or home, take some time to review your policy with your agent to make sure you have the right amount of coverage. Even more critical, do you have life insurance? This is the foundation of any solid financial plan. Without it, people experience extreme financial hardship. Be wise and protect your loved ones by putting a plan in place and preparing for the unexpected.