Whether it’s being swayed into opening a retailer’s credit card, not planning for retirement early in your career, or not teaching your children some basic financial skills, we’re all guilty of making a few money mistakes along the way.
To prove that financial miscues really can happen to everyone, we asked our staff at Diamond to share some money mistakes they made and provide some of their very best financial advice.
One Diamond employee admitted:
“I opened credit card accounts with many retailers, which seemed like a good idea at the time (such as to get 10% off your purchase) but it ended up hurting my credit score. This also made it harder for me to budget due to lots of small credit lines with balances. I know now that it’s better to have one or two credit cards, with a healthy credit line, and pay those down frequently.”
Don’t worry, you’re not alone. Americans, in general, are not always as financially savvy as we should be. In a test conducted by the Global Financial Literacy Excellence Center, respondents under the age of 35 performed poorly on basic financial concepts.
The follow-up report, issued by the Center, stresses the importance of financial know-how and avoiding common money mistakes. Their findings showed that individuals who possess financial knowledge and confidence are:
- more likely to plan, save, invest in stocks, and accumulate more wealth
- less likely to have credit card debt
- able to manage loans more efficiently
- more apt to pay more than just the minimum balance on monthly bills
When it comes to personal finances, follows are some of the most common financial missteps that people make.
Ignoring Your Interest Rate
A few Diamond employees had money mistakes related to lending, including:
“When building credit with credit cards make sure you are able to pay off the balance of that purchase in 3 months or less. This will help you avoid misuse of credit cards or paying a lot of interest that could have been put in a savings for your future.”
“Not fully understanding how my student loans worked. I overcame it by researching and consolidating my loans.” Similarly, another employee stated, “The biggest mistake I made was not paying off my student loans and, instead, frittering money away on impulse purchases.”
We all carry debt, whether it’s student loans, credit cards, a mortgage or car payments. But being financially savvy can affect the way we tackle repayment of our debts. Some people may look at a $200,000 mortgage or $60,000 in student loans and be misled by the large amounts. But consider this, while a mortgage or student loan may carry an interest rate of 3-6%, your credit cards typically carry an interest rate around 11-15%, making them top priority for repayment.
Delaying Retirement Planning
A Diamond team member happily shared this advice:
“I always liked this saying: Nobody plans to fail, instead they fail to plan.”
Money Under 30 shows a great example of how much you can save in your first few years of employment if you start contributing to your company’s 401K at the first opportunity. They suggest a goal of having one year’s salary in your retirement plan by the time you reach 30 years old.
One way of adding more dollars to your fund is to take advantage of your company match, which is essentially free money added to your account! Many employers will match your contributions, up to a certain percent of your salary. So at the very least, be sure to contribute the maximum amount your company will match.
No Emergency Savings
This Diamond employee didn’t admit to any mistakes, but did share some valuable advice:
“The best advice I can offer is budget, budget, budget! As Dave Ramsey (author, talk show host, and personal finance expert) says, ‘Learn to tell your money where to go so that you control your money, rather than having your money control you.’ ”
A recent survey from Bankrate concerning emergency savings accounts, showed that of American Consumers:
- 23% had enough savings to cover expenses for six months or more
- 17% had savings to cover three to five months of expenses
- 24% had savings to cover expenses for less than three months
And while there is no right answer as to what your emergency savings should look like, what is important is that you start saving whatever amount you can. Living paycheck-to-paycheck and paying for life’s emergencies on credit is never the best way to meet your financial goals.
And the 2 best pieces of advice are things you can start doing today:
“Apply for life insurance and disability insurances while you are young and healthy. When you get older it can be harder to be approved for cheaper insurances and pre-existing health problems could cause companies to deny coverage.”
“Check in on your bank accounts weekly, if not daily. It will save time and money!”
If money mistakes have gotten you off-track, reach out to the member services team at Diamond Credit Union with any questions.
Photo credit: http://www.flickr.com/photos/[email protected]/8408943093