Eight Money Mistakes You Can Fix Now
Eight Money Mistakes You Can Fix Now!
Here are eight common money mistakes that you could, and should, fix right now.
Mistake #1 – Spending Over Your Budget.
Budgeting doesn’t have to be overcomplicated. But tracking how much income you are receiving and how much you are spending each month simply makes good financial sense. Since many bills are paid monthly and quarterly, looking at your bank statements over a three-month period is often most helpful. Many banking apps can also help you track your income and expenses. If you find you have more money going out than you have money coming in most months… that needs to be fixed!
Mistake #2 – Not Saving and/or Investing Enough to Reach Your Goals
If you don’t start investing the necessary amount early on, you may never get to your goals. The Law of Compounding shows us that the earlier you start, the better off you tend to be in the long run.
Mistake #3 – Not Having Emergency Savings/Cash Reserves
Not having money earmarked for emergencies puts you at risk if any unforeseen events come your way. It could be losing a job, medical bills, or major home or car repairs. Many financial planners recommend having an emergency savings fund of three to six months of your annual employment income during your working years and a slightly modified version of an emergency fund during retirement years.
Mistake #4 – Not Earning Enough on Your Savings Accounts
At the time of this article, average bank (according to the FDIC as of January 16, 2024) is paying less than half a percent on savings accounts (0.47%). However, dozens of FDIC insured banks that we’ve found are paying over 10 times that amount (over 5% in many cases)… so periodically, it pays to shop around for a higher interest rate on your savings! On $50,000 in savings, that’s the difference between earning about interest $235 annually at 0.47% or $2,500 annually at 5% interest.
Mistake #5 – Only Paying the Minimum on Bad Debt. Like Credit Cards.
Studies show that, the average American has about $10,000 in credit card debt and is paying about 21% interest on that debt. So if you have money in the bank that you’re not using, and you’re only making half a percent on it, while carrying credit card balances with high interest rates, the best financial may be to pay those credit cards off ASAP!
To show you how powerful that can be… if you’re paying about 21% on credit card debt, for every dollar that you pay off of that credit card, you’re saving 21 cents. Extrapolate that out to $10,000 in credit card debt, and that could mean a savings of $2,100 a year that you would have spent in just interest payments.
Mistake #6 – Paying Unnecessary Taxes.
If you don’t have a good tax strategy for both today and tomorrow. For today, consider tax deferred accounts and tax efficient investing. For tomorrow, consider accounts that grow tax-free like Roth IRAs & 401(k)s. If you don’t manage your investments with an eye towards paying less taxes, then over your lifetime, you could potentially pay tens of thousands… if not hundreds of thousands more in unnecessary taxes. We would consider those amounts much more than your fair share to the IRS!
For more information on strategies high-income earners can use to get much larger amounts into Roth accounts than most people realize is possible, check out this video: Roth Strategies for High Income Earners
Mistake #7 – Not Protecting Your Passwords.
If you’re putting your passwords in to a text document, on your phone, on paper or in a notebook… you’re just asking to get hacked! Like termites and houses… cybersecurity experts say there are two type of people: those who have been hacked, and those who will be hacked. Don’t make it any easier than it should be and start using a secure, encrypted password manager (software) that can store all of your passwords. And while we’re at it, don’t use the same passwords over and over. Figure out a way to make them all at least slightly different!
Mistake #8 – Not Having a Comprehensive Financial Plan
A comprehensive, written financial plan can (and should) address all the things we discussed in this article, as well as, much more! Whether you decide to use a financial planner, like RockCrest Financial, or you decide to do it on your own… a financial plan is a crucial document that can guide not only the important financial decisions you make today, but help you make smarter decisions all along your life’s journey.
If you’re interested in learning more about comprehensive financial planning, please feel free to contact us at RockCrest Financial.