8 financial mistakes you should avoid doing
1. Paying for your checking account.
There is no doubt that having a checking account is nice and convenient. However, it is not that peachy if the bank is charging you monthly fee just or having an account. Don't pay for having checking account, as such fees add up to a pretty hefty sum over the years. Check with your bank what you should do to have free checking account. Almost every bank can waive the fees, if one or several terms are met. Most likely you will be asked to have direct deposit, or keep some balance in your checking account ranging anywhere from $500 to $10000. If you are a student, make sure you will ask for the student checking account that is usually free.
2. Reckless spending.
I mean the type of spending, where you are actually not doing any planning for your purchases, you buy a lot of things that you don't actually need, which will end up in your garage, attic or in the darkest corner of your closet. Impulsive spending, unplanned purchases and failure to research the products quality and possible discounts, all leads to having less in your bank account.
3. Paying overdraft or late fees!
This is a pain, if you know what I’m talking about. Banks are eagerly charging anyone $35 for going over on their checking account, even if it is just a couple of dollars, and they will charge you several fees if you did several charges. It is actually called “overdraft protection”. The only question: who is protected here- you or the bank?
You might end up paying hundreds of dollars in overdraft fees. The solution is to switch of the overdraft protection in your checking card account and have the emergency credit card to charge if your checking is low. And better yet, is to budget accordingly and always keep more than $500 on your checking account, so the chances of going overdraft are very slim. For the late fees, know exactly when your bills are due and pay them on time. The best option is to schedule automatic payment from your checking account.
4.Keeping too much balance on your credit card.
Ideally one should pay off the card balance every month he/she uses it. Now, if you cannot do that, you need to consider keeping the lowest balance possible, don’t charge the cards for some time to reduce the balance.
Keeping your cards balance too high, more than 60% of the card limit will hurt your credit score and will leave you with the high monthly usage fee, you can end up with the $9 999 balance on the $10 000 credit card, with $199 minimum payment that coves only interest, and some potentially bad score, that will prevent you to get the best deals on car loans or/and a mortgage.
5. Not checking your credit report and not knowing your credit score.
It can cost you high rates on the loan and in some cases even the ruined credit history, if you become a target for identity theft. There are a lot of websites where you can get the estimation of your FICO score, but the best option is to actually check your actual score at least once a year with the websites like freecreditreport.com. You are also entitled to a free yearly credit report check, but they do not supply your credit score.
6. Buying a house when you cannot afford it, and not buying one when you can. Buying bigger house than you need.
Buying a real estate is a serious step. One should use discretion when estimating their readiness and preparedness for such a big financial step. Down the road money, that you will invest into your house, will give you additional support in the retirement; at the end of the day, it is your asset. However, it is not an asset if it is foreclosed and taken from you after paying mortgage for a while.
Bigger house means more expenses in heating and cooling costs, maintenance and additional space that is inviting us to populate it with more clutter, and don’t forget higher property taxes!
7. Playing "If" and "When" game with your savings.
You know, that you should have some saving for the rainy day ( and not so rainy, as well). However, you hardly have anything in your savings account, if you happen to even have one. That is one of the biggest financial mistakes many of us do. The reason why " emergency fund" and saving for the big purchases (down payment for the house or car) are important, is because it gives you freedom of not being enslaved by the debt. If something like medical emergency, or even unplanned car fixing is needed,- you would be forced to charge it on your credit card. Credit card debts usually grow like snowball sent down the hill!
8. Lacking retirement planning and savings.
One of the common suggestions for the entrepreneurs and gamblers usually goes like this- have an exit strategy. Apparently, all of us would need to quit working at some time either because of our will, or because we don't have any more strength and health to continue playing the workforce roulette game. Guess what, we need to have an exit strategy, too. It would be great if Social Security money will still be around for us, but what if not. Even if you get your federal check of $800 a month, you will not be able to pay all of your bills with it. That is the reason why you should take care of yourself, while you are still in the game, means gainfully employed.
Just automate your bi-weekly or monthly withdrawals to your 401K or IRA account, and you will see it growing. Research and plan any other things you can do to supplement your retirement income, like buying bonds, stocks or real estate.